Contents Chairman’s Statement Tribute Financial Highlights Financial Statistics Summary Products and Services Business Review Corporate Governance Report Directors’ Report Independent Auditor’s Report Consolidated Statement of Profit or Loss Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Corporate Information

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City e-Solutions Limited Annual Report 2015

01

Mission Statement

To invest in businesses with high growth potential so as to increase shareholder value.

City e-Solutions Limited Annual Report 2015

02

Chairman’s Statement

The Group will continue to grow the hospitality reservation business and to adopt a prudent approach in managing the hospitality related businesses by ensuring costs are kept in line with the level of business activities.

On behalf of the Board of Directors, I am pleased to present the Group’s results for the financial year ended 31 December 2015 (“FY2015”). The Group recorded a net loss attributable to the equity shareholders of the Company of HK$55.1 million for FY2015 as compared with a net loss attributable to the equity shareholders of the Company of HK$19.0 million in the previous corresponding year. The higher loss was due mainly to the unrealised valuation losses from the Group’s securities holding as at 31 December 2015 and the reduction of the Group’s deferred tax assets following an assessment of the availability of future taxable profit against which the tax losses can be utilised.

from the conversion of Sterling Pound denominated cash deposits to United States Dollars and from the unfavourable currency movements on the Sterling Pound denominated security holding and Renminbi denominated cash deposits. Overall, the total net realised and unrealised losses of HK$28.6 million was recorded for FY2015 as compared with the total net realised and unrealised losses of HK$4.8 million in the previous corresponding year. However, a one-off foreign exchange gain of HK$2.8 million was realised as a result of striking off a Group’s dormant subsidiary during FY2015. Consequently, the Group’s Investment Holding segment reported a loss before tax of HK$31.2 million for FY2015 as compared with a loss before tax of HK$14.0 million in the previous corresponding year.

The Group’s Investment Holding segment recorded net realised and unrealised valuation loss of HK$19.8 million from the Group’s securities holding as at 31 December 2015. Net realised and unrealised foreign exchange loss of HK$8.8 million was also recorded, which mainly arose

On the Group’s Hospitality segment, the Group’s U.S. hotel management arm, Richfield Hospitality, Inc, recorded lower management fee income of HK$10.3 million for FY2015, down by HK$11.3 million or 52.3% from HK$21.6 million in the previous corresponding year. The decrease in revenue was offset by lower

City e-Solutions Limited Annual Report 2015

03

Chairman’s Statement

administrative expenses and resulted in a loss before tax of HK$15.3 million for FY2015 as compared with a loss before tax of HK$17.2 million in the previous corresponding year. The Sheraton Chapel Hill Hotel, North Carolina, U.S. contributed total revenue of HK$24.9 million, higher from the previous corresponding year by HK$0.1 million. The increase in revenue was offset by higher administrative expenses and resulted in a lower profit contribution of HK$2.3 million as compared to HK$2.5 million in the previous corresponding year. The Group’s 51% equity interest in Sceptre Hospitality Resources, LLC (“SHR”), the hospitality industry’s leading expert for reservations connectivity, online channel marketing and revenue/ channel-management services, recorded higher revenue of HK$49.6 million, up by HK$5.1 million or 11.3% from HK$44.5 million in the previous corresponding year. However, SHR incurred higher administrative expenses during FY2015 to support the revenue growth, resulting in a higher operating loss of HK$5.3 million as compared with an operating loss of HK$1.4 million in the previous corresponding year. During the previous corresponding year, SHR received one-time legal proceeds of HK$4.3 million as final settlement of a contractual obligation arising from the acquisition of Whiteboard Labs, LLC. The Group’s jointly-controlled entity, Richfield Syracuse Hotel Partners, LLC, which owns the Crowne Plaza Syracuse Hotel, contributed a share of profit of HK$1.0 million for FY2015 as compared with a share of profit of HK$1.5 million in the previous corresponding year. The lower share of profit was mainly due to decreased revenue as a result of lower occupancy rates achieved by the hotel for FY2015 as compared to the previous corresponding year. The Group recognised share of profit from its associates, S-R Burlington Partners, LLC. and Cosmic Hospitality China Limited, of HK$0.2 million for FY2015, as compared to a share of profit of HK$0.9 million in the previous corresponding year. Consequently, the Group’s Hospitality segment reported a loss before tax of HK$17.2 million for FY2015 as compared with a loss before tax of HK$9.5 million in the previous corresponding year. As at 31 December 2015, the Group assessed the availability of future taxable profit against which the tax losses can be utilised

and recognised a reduction of the deferred tax assets by HK$19.5 million. This resulted in an income tax charge of HK$13.6 million in FY2015, as compared to an income tax credit of HK$5.0 million in the previous corresponding year. Basic losses per share for FY2015 was HK14.40 cents, calculated on the weighted average number of ordinary shares of the Company in issue during the year of 382,449,524. The Group’s net tangible assets per share decreased to HK$1.24 as at 31 December 2015, down from HK$1.39 as at 31 December 2014. The board did not propose a final dividend for FY2015. PROSPECTS The Group remains cautious in the midst of the global uncertainty, though in the U.S. real estate and hospitality markets have remained active. The Group is in consultation with its joint venture partners to respond to market interests in our investments. The Group will continue to grow the hospitality reservation business and to adopt a prudent approach in managing the hospitality related businesses by ensuring costs are kept in line with the level of business activities. The Group continues to hold some trading securities while its cash reserves are in a basket of currencies. From time to time, there could be continued adjustments attributable to unrealised gains or losses arising from the fair value readjustments of the Group’s trading securities and unrealised gains or losses on the revaluation of foreign currency cash deposits. Mr. Kwek Leng Joo, who served as a Director since 1989, passed away in November 2015. On behalf of the Board of Directors, management and employees, I would like to convey my sincere appreciation for his invaluable contributions and dedicated service over the years. On behalf of the Board of Directors, I would like to thank all customers, business partners, shareholders, management and staff for their continued support of the Group. Kwek Leng Beng Chairman 24 February 2016

City e-Solutions Limited Annual Report 2015

04

Tribute

Kwek Leng Joo (1953–2015)

Mr. Kwek Leng Joo was appointed an Executive Director of City e-Solutions Limited (“CES”) in 1989. Appointed as a Director of City Developments Limited (“CDL”) on 8 February 1980, Mr. Kwek assumed the position of Deputy Managing Director in 1987 and held the role of CDL’s Managing Director from January 1995 until his appointment as Deputy Chairman of CDL on 17 February 2014.

Mr. Kwek Leng Joo Executive Director (1989-2015)

Mr. Kwek was a Non-Executive Director of Hong Leong Finance Limited which is listed on the Singapore Exchange and also a Director of Hong Leong Investment Holdings Private Limited, the holding company of CDL. Mr. Kwek’s leadership, invaluable contribution and presence will be greatly missed by the Board, management and employees of CES. He is fondly remembered as a property tycoon, a charitable philanthropist and an avid photographer.

City e-Solutions Limited Annual Report 2015

05

Financial Highlights

Revenue (HK$’000)

Total share capital and reserves (HK$’000)

Total assets (HK$’000)

674,053

492,103

92,207

609,880

550,234

100,130

Loss before taxation (HK$’000)

Loss attributable to equity shareholders of the Company (HK$’000)

Net tangible assets per share (HK$)

Basic losses per share (HK cents)

1.39 1.24

(4.96) (18,978)

(23,478)

(48,336)

2015

(55,067)

2014

(14.40)

City e-Solutions Limited Annual Report 2015

06

Financial Statistics Summary Consolidated Statement of Profit or Loss

The Group 2015 HK$’000

2014 HK$’000

2013 HK$’000

2012 HK$’000

2011 HK$’000

Revenue

92,207

100,130

102,838

97,448

75,338

(Loss)/Profit before taxation

(48,336)

(23,478)

16,304

236

(41,766)

Income tax (expense)/credit (Loss)/Profit for continuing operations

(13,638)

4,964

(442)

2,528

1,419

(61,974)

(18,514)

15,862

2,764

(40,347)

Continuing operations

Discontinued operations Profit from discontinued operations, net of tax

–

–

–

–

9,002

(Loss)/Profit for the year

(61,974)

(18,514)

15,862

2,764

(31,345)

Attributable to: (55,067)

(18,978)

17,169

7,064

(31,231)

Non-controlling interests

(6,907)

464

(1,307)

(4,300)

(114)

(Loss)/Profit for the year

(61,974)

(18,514)

15,862

2,764

(31,345)

–

–

–

–

–

(14.40)

(4.96)

4.49

1.85

(8.17)

(14.40)

(4.96)

4.49

1.85

(10.52)

Equity shareholders of the Company

Dividends payable to equity shareholders of the Company attributable to the year: Final dividend proposed after balance sheet date Earnings per share Basic (losses)/earnings per share (HK cents) Continuing operations Basic (losses)/earnings per share (HK cents)

City e-Solutions Limited Annual Report 2015

07

Financial Statistics Summary Consolidated Statement of Financial Position

The Group 2015 HK$’000

2014 HK$’000

2013 HK$’000

2012 HK$’000

2011 HK$’000

43,351

41,904

41,903

43,602

43,282

Intangible assets

8,167

10,873

13,588

16,289

361

Goodwill

8,934

8,942

8,937

8,938

1,694

32,985

33,016

32,996

–

–

3,797

9,780

9,495

–

–

–

–

9,340

10,404

12,492

Property, plant and equipment

Available-for-sale financial assets Long term bank deposits Interest in a joint venture Interest in associates Deferred tax assets Current assets Total assets Current liabilities Total assets less current liabilities

8,322

8,880

8,673

1,550

–

10,183

24,632

20,804

23,270

21,927

494,141 609,880

536,026 674,053

535,295 681,031

529,506 633,559

531,112 610,868

(30,382) 579,498

(30,893) 643,160

(34,334) 646,697

(32,799) 600,760

(29,138) 581,730

–

–

(1,632)

(1,971)

(2,535)

Employee benefits Dividends received in excess of earnings from equity-method accounted joint venture Interest-bearing borrowings

(19,487)

(17,256)

–

–

–

(29,591)

(30,394)

(31,229)

(88)

–

Net assets

530,420

595,510

613,836

598,701

579,195

Share capital

382,450

382,450

382,450

382,450

382,450

Reserves Total equity attributable to equity shareholders of the Company Non-controlling interests

109,653

167,784

186,586

170,138

162,064

492,103

550,234

569,036

552,588

544,514

38,317

45,276

44,800

46,113

34,681

530,420

595,510

613,836

598,701

579,195

Capital and reserves

Total equity Major Properties

Tenure

Approximate Site Area (sq. Metres)

Number of Rooms

Effective Group Interest (%)

Sheraton Chapel Hill Hotel 1 Europa Drive, Chapel Hill, North Carolina, U.S.A

Fee Simple

20,072

168

43

Crowne Plaza Syracuse Hotel 701 East Genessee Street Syracuse, New York, U.S.A (Held by a joint venture of the Group)

Fee Simple

4,925

279

43

Hotels

City e-Solutions Limited Annual Report 2015

08

Products and Services

SWAN Holdings Limited Group (“SWAN”) SWAN, a subsidiary of the Company, provides integrated solutions to the hospitality industry. SWAN can help hoteliers manage their properties in a more effective, competitive and cost efficient manner. The SWAN team offers a host of value-added services and expertise in all facets of hotel operation through its four business divisions: Richfield, Sceptre, Shield and Source. Richfield Hospitality Services (Hotel Management) Richfield is an established and highly reputable hotel management company. With strong industry relations and global experience, Richfield is authorised to operate hotels under leading brand affiliations as well as to provide hotel operations and marketing for independently branded properties. For over three decades, Richfield has successfully managed and skillfully developed hotel assets across all markets, categories and consumer segments while specialising in operating premier resorts, full service hotels and limited service properties. As at 31 December 2015, Richfield managed around 2,000 rooms in the form of operational management contracts, asset management, ownership and/or shared

investment, with franchise licenses from leading hotel companies including Hilton, Starwood, InterContinental, Marriott and Choice International. Richfield also operates several independent (non-brand affiliated) properties. Every client’s property benefits from the vast experience and industry expertise of Richfield’s senior management. Each assignment begins by determining the needs of the owner. Richfield reviews the property’s prior performance, identifies opportunities and assesses challenges. Richfield then tailors the appropriate solution to deliver immediate and visible improvement in the performance of the property. With Richfield resources, processes, systems, and technologies, the results typically generate increased profitability to the owner and an upgraded and enhanced experience for each guest. For the past 30 years, Richfield has revitalised over 250 properties, ranging from independent and boutique hotels to large, city centre properties and under virtually every industry brand. Richfield achieves superior operating results through intense focus on ensuring a return on investment for all stakeholders. This is accomplished through

its strong commitment to guests, employees and owners. Services offered by Richfield cover all aspects of hotel management including: - Annual Business Planning - Operations Improvement - Sales & Marketing Consultancy - Revenue and Channel Management - Management of Franchise Affiliation - Human Resources Management - Accounting and Budgeting - Asset Management Services Consistent efforts to grow client relationships and to maximise the profitability of the hotels have culminated in the successful positioning of Richfield as a respected industry player. Sceptre Hospitality Resources (Reservation Distribution) Sceptre Hospitality Resources (“SHR”) is a hospitality industry-leading expert for reservations connectivity, online channel marketing and revenue/channelmanagement services. By increasing exposure of its client hotels throughout the various electronic channels such as the global distribution systems, the Internet and property direct sources, SHR helps hotels to increase revenues from a property’s preferred and most cost-effective channels. SHR’s electronic distribution platform (the Windsurfer CRS) provides hotels with bestof-breed, responsive booking engines, direct connections to major Online Travel Agencies and additional distribution to multiple secondary third-party channels around the world. SHR’s brand promise is nimble technology, intelligent service, and hospitality expertise. At SHR, we distinguish ourselves from our competitors by providing: -

Comfort Inn Near Vail Beaver Creek, Colorado, U.S.A

Hospitality Experts. Our staff of professionals has an extensive industry background and can fully appreciate the needs of clients.

City e-Solutions Limited Annual Report 2015

09

Products and Services

DoubleTree by Hilton Hotel Burlington, Vermont, U.S.A -

Customer Service. We provide focused support to each client to ensure maximum production from the various channels.

-

Affordable Pricing. With transactionfixed pricing, the client will enjoy low costs without compromising support.

-

Flexibility. Our platform and front-end user interfaces can be adapted and customised to serve even the most complex operations.

-

Personalised Attention. Each client is assigned a Client Experience Manager, who works to ensure the functionality of the system is maximised for each particular client.

2. Revenue Management: Revenue management for hire to provide clients with access to revenue management experts dedicated to a particular group of properties. The SHR revenue managers operate in close coordination with the client to set channel and rate strategies and to monitor the different tactics put in place to achieve the client hotel’s revenue management goals. 3. Whiteboard Labs: Custom application development, website design and development and mobile application / site design. 4. SpaLinx: Spa management system booking engine.

The current list of services provided by SHR includes four segments, each focused on maximising revenues for hotels:

SHR’s expert assistance can greatly enhance its clients’ abilities to achieve significant increases in reservations derived through the various electronic distribution channels.

1. WindsurferCRS: Reservations technology and connectivity, booking engine and ability to interface with other hotel systems, like Property Management Systems, Revenue Management Systems and Client Relationship Management Systems.

Shield (Risk Management) Shield provides risk management services to hotels. Recognising the unique risk profile of the hotel industry, Shield advises hotel management teams on how to lower its overall cost of insurance through pro-active programs to mitigate risks at their hotels.

Source (Purchasing and Procurement) Source delivers purchasing and procurement services to hotels with a focus on delivering lower operating expenses to hotels. Source offers hoteliers significant cost savings through its extensive number of national account agreements which are organised to support specific areas of need such as Food and Beverage, Rooms Operations, Engineering and Energy, Administrative, Furnishings, and Fixtures and Equipment.

City e-Solutions Limited Annual Report 2015

10

Business Review

Group Performance The Group recorded revenue of HK$92.2 million in the financial year ended 31 December 2015 (“FY2015”), a decrease of HK$7.9 million or 7.9% from HK$100.1 million in the previous corresponding year (“FY2014”) due mainly to the lower hotel management fee income.

During FY2015, a one-off gain of HK$2.8 million was realised upon striking off a Group’s dormant subsidiary.

The Group reported a net loss attributable to the equity shareholders of the Company of HK$55.1 million for FY2015 as compared with a net loss attributable to equity shareholders of the Company of HK$19.0 million in FY2014, due mainly to the net unrealised valuation losses from the Group’s securities holding as at 31 December 2015 and the reduction of the Group’s deferred tax assets following an assessment of the availability of future taxable profit against which the tax losses can be utilised.

Hospitality The Group’s Hospitality segment contributed total revenue of HK$87.2 million in FY2015, a decrease of HK$7.3 million or 7.7% from HK$94.5 million in FY2014.

The analysis of the Group’s revenue and profit and loss from operations by business segments are set out in the notes to the financial statements. Investment Holding The Group’s Investment Holding segment reported lower dividend and interest income of HK$5.0 million in FY2015, as compared to HK$5.6 million in FY2014. The result of this segment was negatively impacted by the net realised and unrealised valuation loss of HK$19.8 million from the Group’s securities holding as at 31 December 2015. This, together with the net realised and unrealised foreign exchange loss of HK$8.8 million, which mainly arose from the conversion of Sterling Pound denominated cash deposits to United States Dollars and from the unfavourable currency movements on the Sterling Pound denominated trading security and Renminbi denominated cash deposits, had resulted in the Group recording a total net realised and unrealised losses of HK$28.6 million for FY2015, as compared with total net realised and unrealised loss of HK$4.8 million in FY2014.

Overall, the Investment Holding segment recorded a loss before tax of HK$31.2 million for FY2015 as compared with loss before tax of HK$14.0 million in FY2014.

Richfield Hospitality, Inc (“RHI”), the Group’s hotel management arm, recorded lower management fee income of HK$10.3 million for FY2015, down by HK$11.3 million or 52.3% from HK$21.6 million in FY2014. Management has prudently operated this business by ensuring that expenses were under control throughout FY2015 in order to mitigate the lower level of revenue. Consequently, a lower loss before tax of HK$15.3 million was recorded for FY2015 as compared with a loss before tax of HK$17.2 million in FY2014. The Group’s 51% equity interest in Sceptre Hospitality Resources, LLC (“SHR”), the hospitality industry’s leading

expert for reservations connectivity, online channel marketing and revenue/ channel-management services, recorded higher revenue of HK$49.6 million, up by HK$5.1 million or 11.3% from HK$44.5 million in FY2014. However, SHR incurred higher administrative expenses during FY2015 to support the revenue growth, resulting in a higher operating loss of HK$5.3 million as compared with an operating loss of HK$1.4 million in FY2014. During FY2014, SHR received one-time legal proceeds of HK$4.3 million (US$0.55 million) as final settlement of a contractual obligation arising from the acquisition of Whiteboard Labs, LLC, the original owner of the Windsurfer CRS. The Group’s jointly-operated Sheraton Chapel Hill Hotel, North Carolina, U.S (the “Hotel”) contributed total revenue of HK$24.9 million, up by HK$0.1 million or 0.3% from HK$24.8 million in FY2014. The increase in revenue was offset by higher administrative expenses and resulted in a lower profit contribution of HK$2.3 million as compared to HK$2.5 million in FY2014. The Group’s jointly-controlled entity, Richfield Syracuse Hotel Partners, LLC, which owns the Crowne Plaza Syracuse Hotel, contributed a share of profit of

Sheraton Chapel Hill Hotel, North Carolina, U.S.A

City e-Solutions Limited Annual Report 2015

11

Business Review

DoubleTree by Hilton Hotel El Paso Downtown, Texas, U.S.A HK$1.0 million for FY2015 as compared with a share of profit of HK$1.5 million in FY2014. The lower share of profit was mainly due to decreased revenue as a result of lower occupancy rates achieved by the hotel for FY2015 as compared to FY2014. The Group also recognised share of profit from its associates, S-R Burlington Partners, LLC. and Cosmic Hospitality China Limited, of HK$0.2 million for FY2015, as compared to a share of profit of HK$0.9 million in FY2014. Overall, the Hospitality segment reported a loss before tax of HK$17.2 million in FY2015 as compared with a loss before tax of HK$9.5 million in FY2014, due mainly to higher administrative expenses incurred by SHR and the one-time legal proceeds that was received in FY2014 as discussed above. Financial Position As at 31 December 2015, the Group’s total assets stood at HK$609.9 million, decreased from HK$674.1 million as at 31 December 2014. The Group’s net tangible asset per share decreased to HK$1.24 as at 31 December 2015, down from HK$1.39 as at 31 December 2014.

The Group reports its results in Hong Kong Dollar and it is the objective of the Group to preserve its value in terms of Hong Kong Dollar. It is the Group’s policy to continue to pursue strategies that would enhance the Group’s long-term value and bring reasonable returns to the shareholders with a cautious attitude. Cash Flow and Borrowings During FY2015, cash used in operations amounted to HK$24.1 million. The Group received cash dividend from trading securities of HK$1.9 million and interest income of HK$3.5 million during the year. After refund for overseas tax of HK$2.8 million, net cash used in operating activities amounted to HK$15.9 million. In FY2015, the Group received dividends of HK$3.3 million from the Group’s jointly controlled entity, Richfield Syracuse Hotel Partners, LLC. There was a decrease of HK$17.1 million in bank deposits in FY2015. The total interest paid in FY2015 amounted to HK$1.4 million. Overall, HK$0.7 million net cash was used which, together with exchange translation loss of HK$5.9 million, resulted in a total Group’s cash and cash equivalents of

HK$364.3 million as at 31 December 2015, down from HK$370.9 million as at 31 December 2014. Taking into account of the Group’s bank borrowings of HK$30.5 million as at 31 December 2015, the Group was in a net cash position amounting to HK$333.8 million as at 31 December 2015. Hence, the Group’s gearing is zero, which is expressed as a percentage of current and non-current loans and borrowings less cash and cash equivalents over total equity attributable to equity shareholders of the Company. As at 31 December 2015, the Group’s bank borrowings, denominated in U.S. Dollars and fixed at 4.21% per annum, amounted to HK$30.5 million (2014: HK$31.4 million), of which HK$0.9 million was current, as included in the portion of interest-bearing borrowing repayable within a period of one year, and HK$29.6 million was noncurrent and repayable between 1 and 8 years. The bank loans of the Group are secured over the freehold land and building with a carrying amount of HK$37.8 million, pledge of monies held in specific accounts of HK$1.2 million and a non-recourse carveout guarantee by RHI. In addition, as at 31 December 2015, the Group had fully

City e-Solutions Limited Annual Report 2015

12

Business Review

complied with certain financial covenants agreed with the financial institutions. Treasury Activities Majority of the Group’s cash is held in Chinese Renminbi and United States Dollar cash deposits. We will closely monitor the Group’s exposure to currency movement and take the appropriate action when necessary. Directors and Employees As at 31 December 2015, the Group had a total of 65 employees, including directors but excluding employees from the Hotel, down from 71 as at 31 December 2014. There were 53 (2014: 48) full-time employees from the Hotel as at 31 December 2015. The total Group’s staff costs comprising salaries, wages and other benefits was HK$63.0 million as compared with HK$67.2 million in FY2014. The decrease in payroll costs can be attributed mainly to the Hospitality segment. The Group has a competitive wage and benefits package which are critical to maintaining a level of consistent and quality services.

Crowne Plaza Syracuse, New York, U.S.A

Principal Risks and Uncertainties The Group’s financial condition, results of operations, businesses and prospects would be affected by a number of risks and uncertainties including business risks, operational risks and financial management risks. A Group’s subsidiary which operates primarily to supply hotels with electronic distribution technology is susceptible to information technology risk. The Group strives to maintain safe data hosting environments that are compliant with the Payment Card Industry (“PCI”) data security standards and guidelines and constantly monitors the environment in which its software applications are hosted. The financial risk management policies and practices of the Group are shown in note 30 to the financial statements. There may be other risks and uncertainties in addition to those mentioned above which are not known to the Group or which may not be material now but could turn out to be material in the future. Compliance with the Relevant Laws and Regulations As far as the Board of Directors and management are aware, the Group has complied in material respects with the relevant laws and regulations that have a significant impact on the business and operation of the Group. During the year, there was no material breach of or noncompliance with the applicable laws and regulations by the Group. Relationship with Suppliers, Customers and other Stakeholders The Group understands the importance of maintaining a good relationship with its suppliers and customers to meet its immediate and long-term goals. The hotel management arm has implemented corporate citizenship programs to enhance

relationships with customers. It enjoys good relationships with suppliers and customers and strives to take an active part in the communities where they operate. Staff are encouraged to devote time to help nonprofit organisations like Food Banks or to participate in local fund raising activities. During FY2015, there were no material and significant dispute between the Group and its suppliers and/or customers. Environmental Policies and Performance The Group is committed to the long term sustainability of the environment and communities in which it operates. Acting in an environmentally responsible manner, the Group endeavours to comply with laws and regulations regarding environmental protection and adopt effective measures to achieve efficient use of resources, energy saving and waste reduction. Green initiatives and measures have been adopted in the Group’s managed hotels. Such initiatives include recycling of used papers, energy saving measures and water saving practices. Events After the Reporting Period As at date of this report, the Group did not have any significant events since the end of the financial year.

City e-Solutions Limited Annual Report 2015

13

Corporate Governance Report for the year ended 31 December 2015

(a) Corporate governance practices The Directors of the Company (“Directors”) and management (“Management”) are committed to maintaining high standards of corporate governance, in line with the principles stated in the Corporate Governance Code (“CG Code”) set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”). As good corporate governance, it is the intention of the Company to publish the Group’s financial results quarterly. A “Continuous Disclosure Obligation Procedures” (the “Procedures”) dealing with the Company’s obligations for continuous disclosure under the Listing Rules was adopted by the Company and an executive Director, Mr. Lawrence Yip Wai Lam, had been appointed as the Designated Director to be responsible for the Procedures. In his role as Designated Director, Mr. Lawrence Yip Wai Lam will consult with the Chairman of the Board, the Chief Executive Officer (“CEO”) and members of the executive management team, including the Company’s legal advisors, regarding the Company’s discharge of its continuous disclosure obligations. In the opinion of the Directors, save as disclosed below, the Company has complied with CG Code throughout the year under review. Under the CG Code provision E.1.2, the chairman of the board should attend the annual general meeting and invite the chairmen of audit, remuneration, nomination and any other committees (as appropriate) to attend. However, in the annual general meeting held on 20 April 2015 (“2015 AGM”), our Chairman was unable to attend the meeting as he had to attend to other commitments. Mr. Ronald Nathaniel Issen, our Deputy Chairman and a non-executive Director, chaired the 2015 AGM. Further Mr. Chan Bernard Charnwut, a non-executive Director and member of the Audit Committee and Nomination Committee; and Mr. Lawrence Yip Wai Lam, an executive Director, attended the 2015 AGM to answer any question from the shareholders. Under the CG Code provision D.1.4, the Company should have formal letters of appointment for Directors setting out the key terms and conditions of their appointment. It is the normal practice of the Company not to issue formal letters of appointment to Directors as the Company considers that all the Directors fully understand their responsibilities and delegation arrangement in place. The Company reviews its corporate governance practices from time to time to ensure compliance with the CG Code. (b) Directors’ securities transactions The Company has adopted the “Model Code for Securities Transactions by Directors of Listed Issuers” as set out in Appendix 10 of the Listing Rules (“Model Code”) as the code of conduct regarding Directors’ securities transactions. All Directors have confirmed that they have complied with the Model Code throughout the year under review.

City e-Solutions Limited Annual Report 2015

14

Corporate Governance Report for the year ended 31 December 2015

(c) Board of Directors The Board currently comprises 8 Directors, of which 3 are executive Directors, 2 are non-executive Directors and 3 are independent non-executive Directors. The members of the Board are as follows: Executive Directors Mr. Kwek Leng Beng Mr. Gan Khai Choon Mr. Lawrence Yip Wai Lam Non-executive Directors Mr. Chan Bernard Charnwut Mr. Ronald Nathaniel Issen

(Chairman and Managing Director)

(Deputy Chairman)

Independent Non-executive Directors Dr. Lo Ka Shui Mr. Lee Jackson @ Li Chik Sin Mr. Teoh Teik Kee The biographical details of the Directors and senior management (“Senior Management”) are set out in the Profile on Directors and Senior Management section of the Directors’ Report. The relationship between the Directors, Chairman and the CEO is indicated in the respective Profile on Directors and Senior Management. The Company has received from each independent non-executive Director an annual confirmation of his independence pursuant to Rule 3.13 of the Listing Rules and the Company still considers such Directors to be independent. The Board’s primary functions are to set corporate policy and overall strategy for the Group and to provide effective oversight of the management of the Group’s business and affairs. Apart from its statutory responsibilities, the Board also approves the strategic plans, key operational issues, investments and loans, reviews the financial performance of the Group and evaluates the performance and compensation of Senior Management. These functions are either carried out directly by the Board or through committees established by the Board. The Management is responsible for the day-to-day management and operations of the Company’s business including the implementation of internal control, business strategies and plans approved by the Board. A “Schedule of Matters Reserved for Decision by Board” (the “Schedule”) has been adopted by the Company. The Board shall review the items in the Schedule on a periodic basis to ensure that they remain appropriate to the needs of the Group. The Directors, individually or as a group, are entitled to take independent professional advice, at the expense of the Company, in furtherance of their duties and in the event that circumstances warrant it. A “Guidelines for Seeking Independent Professional Advice” has been adopted by the Board. The Company conducts regular scheduled Board meetings on a quarterly basis. Additional meetings are convened as and when circumstances warrant. The attendance of individual Directors at Board, Audit Committee, Remuneration Committee, Nomination Committee and general meetings in 2015, as well as the frequency of such meetings, is set out below:

City e-Solutions Limited Annual Report 2015

15

Corporate Governance Report for the year ended 31 December 2015

(c) Board of Directors (cont’d)

Name of Directors Executive Directors Mr. Kwek Leng Beng Mr. Kwek Leng Joo* Mr. Gan Khai Choon Mr. Lawrence Yip Wai Lam

Board

Attendance/Number of Meetings Audit Remuneration Nomination Committee Committee Committee

Attended 2015 AGM

4/4 4/4 3/4 4/4

N/A N/A N/A N/A

N/A N/A 1/1 N/A

N/A N/A 1/1 N/A

ü

Non-executive Directors Mr. Chan Bernard Charnwut Mr. Ronald Nathaniel Issen

2/4 4/4

3/4 N/A

N/A N/A

1/1 N/A

ü ü

Independent Non-executive Directors Dr. Lo Ka Shui Mr. Lee Jackson @ Li Chik Sin Mr. Teoh Teik Kee

2/4 3/4 4/4

N/A 4/4 4/4

N/A 1/1 1/1

1/1 1/1 0/1

* Passed away on 16 November 2015 N/A – Not Applicable

In addition to Board meetings, the Chairman holds one meeting with non-executive Directors including independent non-executive Directors annually without the presence of executive Directors. The non-executive Directors freely provide their independent opinion to the Board. (d) Directors’ Training and Professional Development All Directors should keep abreast of the responsibilities as a director, and of the conduct and business activities of the Company. The Company is responsible for arranging and funding suitable training for its Directors. The Directors’ training records for the year had been provided to the Company. On appointment to the Board, the newly appointed Director would be provided a comprehensive induction package covering business operations and obligations of being a director to ensure that the Director would be sufficiently aware of the responsibilities under the Listing Rules and other relevant regulatory requirements. All the Directors were provided with monthly commentary on the Group’s business, operations, and financial matters. From time to time, the Company updates and provides written materials to the Directors on the latest development of the Listing Rules, applicable laws, rules and regulations relating to directors’ duties and responsibilities. The Directors confirmed that they have complied with the CG code provision A.6.5.

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Corporate Governance Report for the year ended 31 December 2015

(e) Chairman and Chief Executive The Chairman of the Board is Mr. Kwek Leng Beng. Mr. Wong Hong Ren joined the Company on 2 March 2015 as the CEO in succession to Mr. Sherman Kwek Eik Tse, who stepped down as the CEO of the Company on 2 March 2015. There is a clear division of responsibilities between the Chairman and the CEO. The Chairman bears primary responsibility for the workings of the Board, by ensuring its effective function, while the CEO bears executive responsibility for the Company’s business, including management of the Company’s day-to-day operations and implementation of key policies, procedures and business strategies approved by the Board. (f)

Non-executive Directors

The non-executive Directors and independent non-executive Directors were appointed for a specific term of 3 years, subject to retirement by rotation at annual general meeting and being eligible, to offer themselves for re-election. (g) Remuneration Committee (“RC”) The RC was established in May 2005 and comprises 2 independent non-executive Directors and 1 executive Director. The members of the RC are as follows: Mr. Teoh Teik Kee Mr. Lee Jackson @ Li Chik Sin Mr. Gan Khai Choon

Chairman (Independent non-executive Director) Member (Independent non-executive Director) Member (Executive Director)

The primary objective of the RC is to consider management recommendation, and determine the framework or broad policy for remuneration for the Directors and the senior key executives, including the CEO. No Director or any of his associates may be involved in any decisions as to his own remuneration. The duties of the RC also include: (a)

To review and approve Management’s remuneration proposal and the criteria for assessing employee performance, which should reflect the Company’s business objectives and targets; and

(b) To consider Management’s recommendation on the payment of annual and/or variable performance bonus to employees of the Company, and review and approve the annual and/or variable performance bonus payable to the executive Directors and Senior Management, having regard to their achievements against the performance criteria and by reference to market norms. The Company’s remuneration policy comprises primarily a fixed component (in the form of a base salary) and a variable component (which includes bonus and share option grants), taking into account other factors such as the individual performance, the performance of the Company and industry practices. The RC met once during the year under review to discuss remuneration related matters (including the remuneration of Directors and Senior Management) and review the remuneration policy of the Group. It has been decided that RC would determine, with delegated responsibility, the remuneration packages of individual executive Directors and Senior Management.

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Corporate Governance Report for the year ended 31 December 2015

(g) Remuneration Committee (“RC”) (cont’d) The remuneration payable to members of Senior Management, including the CEO, is within the following band: Number of Individuals HK$Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$2,000,001 – HK$2,500,000 HK$2,500,001 – HK$3,000,000

1 1

Further details of Directors’ and CEO’s emoluments and the 5 top-paid employees are set out in notes to the Financial Statements. The Company had a share option scheme (the “2005 Scheme”) which was adopted on 27 April 2005 whereby the Directors are authorised, at their discretion, to invite employees of the Group, including Directors of any company in the Group, to take up options to subscribe for shares of the Company. The 2005 Scheme has lapsed and there are no options to take up unissued shares of the Company and no unissued shares of the Company under option. (h) Nomination Committee (“NC”) The NC was established in August 2005 and comprises 3 independent non-executive Directors, 1 non-executive Director and 1 executive Director. The members of the NC are as follows: Dr. Lo Ka Shui Mr. Teoh Teik Kee Mr. Lee Jackson @ Li Chik Sin Mr. Chan Bernard Charnwut Mr. Gan Khai Choon

Chairman (Independent non-executive Director) Member (Independent non-executive Director) Member (Independent non-executive Director) Member (Non-executive Director) Member (Executive Director)

The revised Terms of Reference of NC was adopted on 1 September 2013. The principal responsibilities of NC are to review regularly the Board composition, to identify and nominate suitable candidates as Board members, to assess the independence of the independent non-executive Directors, and to make recommendations to the Board on the appointment or re-appointment of Directors and succession planning for Directors in particular, the Chairman of the Board and the CEO. The Company has adopted a “Board Diversity Policy” on 1 September 2013 which sets out the Company’s approach and the basic principles to be followed in order to achieve diversity on the Board. The Company believes diversity is important to enhance board effectiveness by encouraging a diversity of perspectives and to maintain high standards of corporate governance. The range of diversity perspectives may include a consideration of various factors, including but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service, and other factors based on the specific needs of the Company. The Company agrees with the general philosophy of diversity for the Board, and will pursue this philosophy whenever the opportunity arises, and when it is appropriate. During the year under review, the NC met once to assess the independence of independent non-executive Directors and the balance and composition of the Board and Board committees. The NC also reviewed and recommended the re-election of the retiring Directors at the 2015 AGM and assessed the independence of Mr. Teoh Teik Kee who has served as an independent non-executive Director for more than nine years.

City e-Solutions Limited Annual Report 2015

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Corporate Governance Report for the year ended 31 December 2015

(i)

Audit Committee (“AC”)

The Company has an AC which was established in compliance with Rule 3.21 of the Listing Rules for the purposes of reviewing and providing supervision over the Group’s financial reporting process and internal controls. The AC comprises 2 independent non-executive Directors and 1 non-executive Director. The members of the AC are as follows: Mr. Teoh Teik Kee Mr. Lee Jackson @ Li Chik Sin Mr. Chan Bernard Charnwut

Chairman (Independent non-executive Director) Member (Independent non-executive Director) Member (Non-executive Director)

The principal responsibility of the AC is to assist the Board in maintaining a high standard of corporate governance, particularly by providing an independent review of the effectiveness of the Company’s financial reporting process and material internal controls, including financial, operational, compliance and risk management controls. Other duties within its written terms of reference include: (a)

To monitor the integrity of the half-year, quarterly or other periodic and annual financial statements and review them before submission to the Board for approval for publication;

(b) To review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process in accordance with applicable standards; (c)

To review the internal audit programme, ensure co-ordination between the internal and external auditors, and ensure that the internal audit function is adequately resourced and has appropriate standing within the Group, and to review and monitor its effectiveness; and

(d) To review arrangements which employees of the Company can use, in confidence, to raise concerns about possible improprieties in financial reporting, internal control or other matters and to ensure that proper arrangements are in place for fair and independent investigation of these matters and for appropriate follow-up action. During the year under review, the AC held 4 meetings in February, May, August and November. In the meeting held in February 2015, the Annual Report and Audited Financial Statements for the year ended 31 December 2014 were reviewed together with the external auditors. In the May 2015 meeting, the Unaudited Financial Results for the 3 months ended 31 March 2015 were reviewed. In the August 2015 meeting, the Interim Financial Report for the 6 months ended 30 June 2015 was reviewed. In the November 2015 meeting, the Unaudited Financial Results for the 9 months ended 30 September 2015 were reviewed. Other financial, internal control, corporate governance and risk management matters of the Group were also discussed in these meetings. The AC has reviewed the independence of the external auditors, KPMG LLP (“KPMG”) as well as objectivity and effectiveness of the audit process. The AC also made recommendations to the Board on the appointment and retention of the external auditors. The AC meets with the external auditors separately without the presence of management, annually.

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Corporate Governance Report for the year ended 31 December 2015

(j)

Corporate governance functions

The Board is responsible for the corporate governance functions, which include the following duties: (a) (b) (c) (d) (e)

To develop and review the Company’s policies and practices on corporate governance; To review and monitor the training and continuous professional development of Directors and Senior Management; To review and monitor the Company’s policies and practices on compliance with legal and regulatory requirements; To develop, review and monitor the code of conduct applicable to employees and Directors; and To review the Company’s compliance with the code and disclosure in the Corporate Governance Report.

The Board has discharged the above functions during the year. (k) Auditors’ remuneration During the year under review, the Group has engaged KPMG (including any entity that is under common control, ownership or management with KPMG or any entity that a reasonable and informed third party having knowledge of all relevant information would reasonably conclude as part of KPMG nationally or internationally) to provide the following services and their respective fees charged are set out as below: Fees charged Year 2015 Year 2014 HK$’000 HK$’000 Type of services Audit services for the Group Taxation services Non-audit services: - review of continuing connected transactions - review of half-year financial statements - review of the compilation of financial information Total

3,798 61

3,679 1,188

55 590 155

55 601 116

4,659

5,639

(l) Accountability The Directors acknowledge that they are primarily responsible for the preparation of the financial statements which give a true and fair view and that appropriate accounting policies are selected and applied consistently. To the best knowledge of the Directors, there is no uncertainty relating to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. (m) Internal control The Board is responsible for the Group’s system of internal controls and for reviewing its effectiveness. During the year under review, the Board has through the AC reviewed the effectiveness of the Group’s system of internal controls, including financial, operational and compliance controls and risk management functions. The review also included the consideration of the adequacy of resources, staff qualifications and experience, training programmes and budget of the Company’s accounting and financial reporting function. Internal audit function was carried out on a systematic rotational basis based on the risk assessments of the operation and controls, and reports were presented to the AC at least twice every year on significant findings on internal control system.

City e-Solutions Limited Annual Report 2015

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Corporate Governance Report for the year ended 31 December 2015

(n) Company Secretary Ms. Leung Wing Han Sharon (“Ms. Leung”) was appointed as the Company Secretary of the Company with effect from 13 February 2015 in place of Mr. Wan Ho Yan, who has tendered his resignation as the Company Secretary of the Company with effect from the same date. Ms. Leung is a vice president of SW Corporate Services Group Limited and her primary contact person at the Company is Mr. Lawrence Yip Wai Lam, an executive Director. The Company Secretary confirmed that she has taken no less than 15 hours of relevant professional training during the year under review. (o) Shareholders’ rights A “Shareholder Communication Policy” was adopted by the Board in May 2012 to maintain an on-going dialogue with shareholders and the investment community, and the Board will review this policy from time to time to ensure its effectiveness, and compliance with the Company’s objectives and responsibilities. Shareholders should direct their questions about their shareholdings to the Company’s Registrar and may at any time make enquiry to the Board or make request for the Company’s information to the extent such information is publicly available at the Company’s principal office and/or branch office in Hong Kong. (i)

In accordance with Article 72 of the Company’s Articles of Association, general meetings may be convened on the written requisition of any two members of the Company deposited at the registered office specifying the objects of the meeting and signed by the requisitionists and such meeting shall be held two (2) months after the deposit of such requisition, and if the Directors do not within twenty-one days from the date of deposit of the requisition proceed duly to convene the meeting, the requisitionists themselves may convene the general meeting in the same manner, as nearly as possible, as that in which meetings may be convened by the Directors, and all reasonable expenses incurred by the requisitionists as a result of the failure of the Directors shall be reimbursed to them by the Company. (ii)



Procedures for shareholders to put forward proposals at shareholders’ meetings

There are no provisions in the Company’s Articles or the Companies Law of the Cayman Islands for shareholders to put forward new resolutions at general meetings. Shareholders who wish to put forward a new resolution may request the Company to convene a general meeting in accordance with the procedures set out in the above paragraph heading “Procedures for Shareholders to Convene an Extraordinary General Meeting”. (iii)



Procedures for Shareholders to Convene an Extraordinary General Meeting

Procedures for shareholders to nominate a person to stand for election as a Director

If a shareholder wishes to nominate a person to stand for election as a Director at a general meeting, the relevant documents must be validly served on the principal office of the Company within the requisite period of time. The full details of the procedures for shareholders to propose a person for election as a director were posted on 30 March 2012 on the website of The Stock Exchange of Hong Kong Limited and the Company’s third-party hosted website at http://www.merrillifn.com/ir/ces/.

(p) Investor relations There is no change to the Company’s constitutional documents during the year under review.

City e-Solutions Limited Annual Report 2015

21

Directors’ Report

for the year ended 31 December 2015

The Directors submit herewith their annual report together with the audited financial statements for the year ended 31 December 2015. PRINCIPAL PLACE OF BUSINESS City e-Solutions Limited (the “Company”) is a company incorporated in the Cayman Islands and domiciled in Hong Kong. Its registered office is at P.O. Box 309, Grand Cayman, Cayman Islands, British West Indies and principal place of business in Hong Kong is at Room 2803, 28th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong. PRINCIPAL ACTIVITIES AND BUSINESS REVIEW The principal activities of the Company comprise those of investment holding and the provision of consultancy services. The principal activities and other particulars of the subsidiaries are set out in note 28 to the financial statements. The analysis of the principal activities and geographical locations of the operations of the Company and its subsidiaries (the “Group”) during the financial year are set out in note 11 to the financial statements. Further discussion and analysis of these activities as required by Schedule 5 to the Hong Kong Companies Ordinance, including a discussion of the principal risks and uncertainties facing the Group and an indication of likely future developments in the Group’s business, can be found in the Business Review section set out on pages 10 to 12 of this Annual Report. This discussion forms part of this directors’ report. MAJOR CUSTOMERS AND SUPPLIERS The information in respect of the Group’s sales and purchases attributable to the major customers and suppliers respectively during the financial year is as follows: Percentage of the Group’s total Sales Purchases The largest customer Five largest customers in aggregate The largest supplier Five largest suppliers in aggregate

10% 31% 13% 41%

Saved as disclosed herein, at no time during the year have the Directors, their associates or any shareholder of the Company (which to the knowledge of the Directors own more than 5% of the number of issued shares of the Company) had any interest in these major customers and suppliers. The Group’s largest customer is made up of indirect wholly-owned subsidiaries of Millennium & Copthorne Hotels plc, which is a subsidiary of City Developments Limited, a controlling shareholder of the Company. One of the five largest customers is a joint venture held by the Company.

City e-Solutions Limited Annual Report 2015

22

Directors’ Report

for the year ended 31 December 2015

RECOMMENDED DIVIDEND The Directors of the Company do not recommend the payment of any final dividend for the year ended 31 December 2015 (2014: nil). No interim dividend was paid for the year ended 31 December 2015 (2014: nil). CHARITABLE DONATIONS Charitable donations made by the Group during the year amounted to nil (2014: nil). SHARE CAPITAL The Company did not issue any shares during the financial year. The Company has a share option scheme (the “2005 Scheme”) which was adopted on 27 April 2005 (the “Adoption Date”) whereby the Directors of the Company are authorised, at their discretion, to invite employees of the Group, including Directors of any company in the Group, to take up options to subscribe for shares of the Company. The purpose of the scheme is to provide an opportunity for employees of the Group to acquire an equity participation in the Company and to encourage them to work towards enhancing the value of the Company and its shares for the benefit of the Company and its shareholders as a whole. Under the 2005 Scheme, the maximum number of shares that may be granted by the Directors shall not exceed 10% of the share capital of the Company in issue at the Adoption Date unless the Company obtains a fresh approval from its shareholders. The maximum number of shares which may be issued upon exercise of all outstanding options and yet to be exercised under the 2005 Scheme and any other option scheme(s) of the Company shall not in aggregate exceed 30% of the shares in issue from time to time. The subscription price of shares under the 2005 Scheme shall not be less than the highest of: (i) the official closing price of the shares as stated in daily quotations sheet of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on the Offer Date; (ii) the average of the official closing price of the shares as stated in daily quotations sheets of the Stock Exchange for the 5 business days immediately preceding the Offer Date; and (iii) the nominal value of a share. The Executive Share Option Scheme (the “1997 Scheme”) adopted by the Company on 11 June 1997 was terminated upon the 2005 Scheme becoming effective. The 2005 Scheme was valid and effective for a period of ten years ended on 26 April 2015, after which no further options would be granted. Throughout the financial year, no share option was granted and outstanding. During the financial year, the 2005 Scheme has lapsed. There were no options to take up unissued shares of the Company and no unissued shares of the Company under option.

City e-Solutions Limited Annual Report 2015

23

Directors’ Report

for the year ended 31 December 2015

DIRECTORS The Directors of the Company during the financial year were as follows:

Executive Directors Mr. Kwek Leng Beng, Chairman and Managing Director Mr. Kwek Leng Joo (passed away on 16 November 2015) Mr. Gan Khai Choon Mr. Lawrence Yip Wai Lam



Non-executive Directors Mr. Chan Bernard Charnwut Mr. Ronald Nathaniel Issen, Deputy Chairman



Independent non-executive Directors Dr. Lo Ka Shui Mr. Lee Jackson @ Li Chik Sin Mr. Teoh Teik Kee

In accordance with Article 116 of the Articles of Association of the Company, one third of the present Directors will retire from office by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. Mr. Kwek Leng Beng, Dr. Lo Ka Shui and Mr. Chan Bernard Charnwut shall retire from office at the forthcoming Annual General Meeting and, being eligible, have offered themselves for re-election. PROFILE ON DIRECTORS AND SENIOR MANAGEMENT Directors Mr. Kwek Leng Beng, aged 75 Chairman and Managing Director Mr. Kwek Leng Beng has been the Chairman and Managing Director of the Company since 1989. He is the Executive Chairman of City Developments Limited. He is also the Chairman and Managing Director of Hong Leong Finance Limited. He is the Chairman of Millennium & Copthorne Hotels plc, Hong Leong Asia Ltd, and Hong Leong Investment Holdings Pte. Ltd. Mr. Kwek has extensive experience in the finance business, having grown from day one with the original Hong Leong Finance Limited which has since merged its finance business with Singapore Finance Limited (now known as Hong Leong Finance Limited). He also has vast experience in the real estate business, the hotel industry as well as the trading and manufacturing business. Mr. Kwek’s achievements have also captured the attention of the academic institutions. He was conferred Honorary Doctorate of Business Administration in Hospitality from Johnson & Wales University (Rhode Island, U.S.), where students have an opportunity to pursue career education in business, hospitality, culinary arts or technology; and Honorary Doctorate from Oxford Brookes University (UK) whose citation traced how Mr. Kwek, who joined the family business in the early 1960s, had gone on to establish an international reputation for his leadership of the Hong Leong Group, as well as being an active supporter of higher education in Singapore.

City e-Solutions Limited Annual Report 2015

24

Directors’ Report

for the year ended 31 December 2015

PROFILE ON DIRECTORS AND SENIOR MANAGEMENT (cont’d) Mr. Kwek Leng Beng, aged 75 (cont’d) Chairman and Managing Director At the Securities Investors Association Singapore (SIAS) Investors’ Choice Awards in October 2012, Mr. Kwek (as Executive Chairman of City Developments Limited), together with the late Mr. Kwek Leng Joo, emerged joint winners as “Partners in the Office of the CEO” in the Brendan Wood International – SIAS TopGun CEO Designation Award. This Award is accorded to CEOs who are best in class rated by shareholders. Mr. Kwek also serves as a member of the INSEAD East Asia Council. France-based INSEAD is one of the world’s leading and largest graduate business schools which brings together people, cultures and ideas from around the world. He is also a Fellow of the Singapore Institute of Directors. In February 2014, Mr. Kwek was presented with the inaugural Real Estate Developers’ Association of Singapore (REDAS) Lifetime Achievement Award which was introduced to honour a pioneering group of real estate industry leaders in Singapore. In February 2015, Mr. Kwek was also presented the Singapore Chinese Chamber of Commerce and Industry (“SCCC”) SG50 Outstanding Chinese Business Pioneers Award. The Award honours Singapore’s outstanding Chinese business pioneers and their exemplary contributions to nation-building. In March 2015, Mr. Kwek Leng Beng was awarded “Best Singaporean Investor to Italy” by the Italian Chamber of Commerce in Singapore (ICCS). This annual award is presented to business people who have made impactful investments in Italy and helped to boost bilateral ties between Italy and Singapore. In October 2015, Hotel Investment Conference Asia Pacific (HICAP) conferred Mr. Kwek with the prestigious Lifetime Achievement Award. This award is not an annual award and is only presented to exceptional individuals who have distinguished themselves through their accomplishments and contributions to the hotel industry in the Asia Pacific region and the world. Mr. Kwek is the first Singaporean to clinch this coveted award. Mr. Kwek holds a law degree, LL.B. (London) and is also a fellow of The Institute of Chartered Secretaries and Administrators. Mr. Kwek Leng Beng is the brother-in-law of Mr. Gan Khai Choon. Mr. Ronald Nathaniel Issen, aged 53 Non-executive Director/Deputy Chairman Mr. Ronald Nathaniel Issen was appointed as a non-executive Director on 14 May 2013 and appointed as the Deputy Chairman of the Company on 9 October 2013. He holds an MBA from Stanford University’s Graduate School of Business and a BA from Williams College. Mr. Issen serves, inter alia, as a non-independent and non-executive Director of M&C REIT Management Limited and M&C Business Trust Management Limited, as a non-executive Director of Capella Hotel Group Asia Pte. Ltd., as a non-independent and non-executive Director of Auric Pacific Group Limited and acts as Managing Director of Issen & Company. He is a past Senior Advisor based in Hong Kong for Apollo Global Management LLC, and previously served on the board of MIDAN City Development Co. Ltd (formerly Lippo Incheon Development Co. Ltd.) in Korea, as well as on the board for SGX-ST listed Food Junction Holdings Ltd. Prior, Mr. Issen was on the Executive Management Committee of Hong Kong’s HKSE listed eSun Holdings Limited (part of Hong Kong’s Lai Sun Group) and earlier spent more than 10 years as a senior banking executive with Credit Agricole Indosuez (and its predecessor organisations, including Banque Indosuez, now part of Credit Agricole) in Europe and Asia. He has also held positions, among others, with Smith Barney (later acquired by Citigroup) and with the Boston Consulting Group. Additionally, he serves as Chapter Head/President and member of the Board of Directors of the Stanford GSB Chapter of Hong Kong Limited.

City e-Solutions Limited Annual Report 2015

25

Directors’ Report

for the year ended 31 December 2015

PROFILE ON DIRECTORS AND SENIOR MANAGEMENT (cont’d) Mr. Gan Khai Choon, aged 69 Executive Director Mr. Gan Khai Choon was appointed as an executive Director of the Company in 1989. On 22 April 2009, he was appointed as a member of the Remuneration Committee and Nomination Committee of the Company. He is also Managing Director of Hong Leong International (Hong Kong) Limited. Apart from being an executive Director of the Company, Mr. Gan also holds a number of directorships in other members of the Group. He is also a Director of China Yuchai International Limited. He is also an independent non-executive Director of Safety Godown Company Limited and Chairman of its Audit Committee. Mr. Gan was appointed Chairman of HL Global Enterprises Limited in September 2007. He has more than 40 years of experience in banking, real estate investment and development. He has been responsible for overseeing the development of the Grand Hyatt Taipei and other international projects for the Hong Leong Group of companies. Mr. Gan has a Bachelor of Arts degree (Honours) in Economics from the University of Malaya. Mr. Gan Khai Choon is the brother-in-law of Mr. Kwek Leng Beng. Mr. Lawrence Yip Wai Lam, aged 60 Executive Director Mr. Lawrence Yip was appointed an executive Director of the Company in December 1998. Apart from being an executive Director of the Company, Mr. Yip also holds a number of directorships in other members of the Group. Mr. Yip is also a Director of eMpire Investments Limited. He was formerly the General Manager (Finance & Administration) of the Company. He has over 10 years of experience in the Treasury Division of several banks. Prior to joining the Group in April 1990, Mr. Yip held the position of Regional Treasurer with a bank in Singapore. Mr. Chan Bernard Charnwut, aged 51 Non-executive Director Mr. Chan Bernard Charnwut has been a Director of the Company since 1989 and was appointed as a member of the Audit Committee on 18 January 2000. Previously an independent non-executive Director of the Company, he was re-designated as a non-executive Director of the Company with effect from 30 September 2004. In 2005, he was appointed as a member of the Nomination Committee of the Company. Mr. Chan is a Deputy to the National People’s Congress and a former member of both Hong Kong’s Executive and Legislative Councils. He sits on a number of bodies, including as the Chairman of the Advisory Committee on Revitalisation of Historic Buildings, the Hong Kong-Thailand Business Council, the Committee on Reduction of Salt & Sugar in Food and the Chairperson of the Hong Kong Council of Social Service. He is also an Advisor to Bangkok Bank (China) Company Limited. He was a non-executive Director of New Heritage Holdings Limited from 14 November 2005 to 5 June 2014. Mr. Chan was re-appointed as a member of the Executive Council of Hong Kong SAR in 2012. He stepped down as the Chairman of the Council for Sustainable Development on 28 February 2015. A graduate of Pomona College in California, he is the President of Asia Insurance Co Ltd. Mr. Chan is also an executive Director and the President of Asia Financial Holdings Limited and an independent non-executive Director of Yau Lee Holdings Limited, Chen Hsong Holdings Limited and China Resources Beer (Holdings) Co. Ltd.

City e-Solutions Limited Annual Report 2015

26

Directors’ Report

for the year ended 31 December 2015

PROFILE ON DIRECTORS AND SENIOR MANAGEMENT (cont’d) Dr. Lo Ka Shui, aged 69 Independent non-executive Director Dr. Lo Ka Shui was appointed to the Board of the Company in 1989. In 2005, he was appointed as the Chairman of the Nomination Committee of the Company. He graduated from McGill University with a Bachelor of Science Degree and from Cornell University with a Doctor of Medicine (M.D.) Degree. He was certified in Internal Medicine and Cardiology. He has over three decades of experience in property and hotel development and investment both in Hong Kong and overseas. Dr. Lo is the Chairman and Managing Director of Great Eagle Holdings Limited and the Chairman and a non-executive Director of the Manager of the publicly listed trusts, Champion Real Estate Investment Trust and Langham Hospitality Investments. He is also an independent non-executive Director of Shanghai Industrial Holdings Limited, Phoenix Satellite Television Holdings Limited and China Mobile Limited. Dr. Lo is a Vice President of The Real Estate Developers Association of Hong Kong, a Trustee of the Hong Kong Centre for Economic Research, a member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority and a Vice Chairman of The Chamber of Hong Kong Listed Companies. Mr. Lee Jackson @ Li Chik Sin, aged 83 Independent non-executive Director Mr. Lee Jackson was appointed as an independent non-executive Director and Chairman of the Audit Committee of the Company in December 1998. In 2005, he was appointed a member of the Remuneration Committee and the Nomination Committee of the Company. On 22 April 2009, he stepped down as the Chairman of the Audit Committee of the Company and remains as a member of the Audit Committee. He stepped down as the lead independent Director of Hong Fok Corporation Limited on 30 April 2014. He was formerly a partner of an international firm of Chartered Accountants and is a member of The Australian Institute of Chartered Accountants. Mr. Teoh Teik Kee, aged 56 Independent non-executive Director Mr. Teoh Teik Kee was appointed as an independent non-executive Director and a member of the Audit Committee of the Company on 30 September 2004. In 2005, he was appointed as Chairman of the Remuneration Committee and a member of the Nomination Committee of the Company. On 22 April 2009, he was appointed as Chairman of the Audit Committee of the Company. Mr. Teoh is a lead independent Director of Luzhou Bio-Chem Technology Limited and was appointed as a non-independent & non-executive Director of Hwang Capital (Malaysia) Berhad (formerly known as Hwang-DBS (Malaysia) Berhad) on 1 April 2013. Mr. Teoh resigned as a non-executive non-independent Director of Great Group Holdings Limited on 1 November 2013. Mr. Teoh is a Chartered Accountant by training, and worked from 1986 to 1990 with KPMG Peat Marwick McLintock in London and with PricewaterhouseCoopers in Singapore. He has extensive experience in investment banking and corporate financial advisory services when he was with the DBS Group from 1993 to 2001. Mr. Teoh graduated from Aston University, Birmingham, United Kingdom with a Bachelor of Science (Honours) Degree in Managerial and Administrative Studies, and is a member of The Institute of Chartered Accountants in England and Wales. He also has a diploma in Corporate Treasury Management awarded by the Association of Corporate Treasurers in the United Kingdom. The non-executive Directors are subject to the same terms of appointment as the other Directors of the Company. Fees payable to non-executive Directors are approved by the Board at the end of each financial year.

City e-Solutions Limited Annual Report 2015

27

Directors’ Report

for the year ended 31 December 2015

PROFILE ON DIRECTORS AND SENIOR MANAGEMENT (cont’d) Senior Management Mr. Wong Hong Ren, aged 64 Chief Executive Officer Mr. Wong Hong Ren was appointed as the Chief Executive Officer of the Company on 2 March 2015. Prior to joining the Company, Mr. Wong was the Group CEO of Millennium & Copthorne Hotels plc (“M&C”) listed on the London Stock Exchange. Appointed as Group CEO at M&C in June 2011, Mr. Wong’s responsibilities included leading the management team and setting the overall direction of M&C Group’s operational activities and performance, and he was instrumental in developing and executing key elements of M&C’s strategy. Mr. Wong was previously a non-executive director of the Company from October 1994 until April 2009. He is currently the non-executive Chairman of Millennium & Copthorne Hotels New Zealand Limited and CDL Investments New Zealand Limited, both of which are listed on the New Zealand Stock Exchange. Mr. Wong is also the non-executive Chairman of M&C REIT Management Limited, the manager of CDL Hospitality Real Estate Investment Trust, and M&C Business Trust Management Limited, the trustee-manager of CDL Hospitality Business Trust which are stapled together and listed on the Singapore Exchange Limited as CDL Hospitality Trusts. Mr. Wong holds a Master degree in Business Administration from Bradford University, United Kingdom. Mr. Rodrigo Jimenez, aged 49 Chief Executive Officer, Sceptre Hospitality Resources, LLC (“SHR”) Mr. Jimenez was appointed as Chief Executive Officer of SHR on 23 July 2015. Mr. Jimenez has a long history in the hospitality technology space, starting with Webvertising, the company that created the iHotelier Central Reservations System. In 2004, he co-founded Whiteboard Labs, which produced the WindsurferCRS in 2009. Since then, in 2012, Whiteboard Labs merged with Sceptre to create SHR and he has been successfully leading SHR through great growth since its inception. Prior to his time in the technology sector, Mr. Jimenez spent 10 years in the banking industry where he advised a large number of companies in a wide-range of industries and countries. During this time, he was a Vice President in the Latin America corporate banking group of Bank of America and also served as Vice President and Client Advisor in the International Department of the Chase Manhattan Bank in Houston. In that capacity, he advised subsidiaries of multinational companies in corporate finance and investment banking matters. Mr. Jimenez is a graduate of the Financial Management Program at Stanford University and was a participant in the 1999 Focused Financial Management Series at Harvard Business School. He holds a B.B.A. in Marketing and an M.B.A. in International Business & Finance from the University of Houston.

City e-Solutions Limited Annual Report 2015

28

Directors’ Report

for the year ended 31 December 2015

DIRECTORS’ AND CHIEF EXECUTIVE OFFICER’S INTERESTS IN SHARES (a) As at 31 December 2015, the interests of the Directors and Chief Executive Officer of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and The Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”), were as follows: THE COMPANY

Name of Director Kwek Leng Beng Gan Khai Choon Lawrence Yip Wai Lam Chan Bernard Charnwut

Nature of Interest

Number of Ordinary Shares of HK$1.00 each

personal personal personal personal

3,286,980 1,041,100 520,550 53,850

personal

1,513,112

Nature of Interest

Number of Ordinary Shares

personal personal family

397,226 100,000 25,000

family

4,950

Name of Chief Executive Officer Wong Hong Ren CITY DEVELOPMENTS LIMITED Name of Director Kwek Leng Beng Gan Khai Choon

Name of Chief Executive Officer Wong Hong Ren

City e-Solutions Limited Annual Report 2015

29

Directors’ Report

for the year ended 31 December 2015

DIRECTORS’ AND CHIEF EXECUTIVE OFFICER’S INTERESTS IN SHARES (cont’d) CITY DEVELOPMENTS LIMITED Name of Director Kwek Leng Beng Gan Khai Choon

Nature of Interest

Number of Preference Shares

personal personal family

144,445 49,925 25,738

Nature of Interest

Number of Ordinary Shares

personal family

2,320 247

Nature of Interest

Number of Ordinary Shares of 30 pence each

personal

26,081

family

125,136

Nature of Interest

Number of Ordinary Shares

personal

906,000

personal

604,000

Nature of Interest

Number of Redeemable Non-Voting Preference Shares

personal

453,000

personal

302,000

HONG LEONG INVESTMENT HOLDINGS PTE. LTD.

Name of Director Kwek Leng Beng Gan Khai Choon MILLENNIUM & COPTHORNE HOTELS PLC

Name of Director Lawrence Yip Wai Lam Name of Chief Executive Officer Wong Hong Ren MILLENNIUM & COPTHORNE HOTELS NEW ZEALAND LIMITED Name of Director Kwek Leng Beng Name of Chief Executive Officer Wong Hong Ren

Name of Director Kwek Leng Beng Name of Chief Executive Officer Wong Hong Ren

City e-Solutions Limited Annual Report 2015

30

Directors’ Report

for the year ended 31 December 2015

DIRECTORS’ AND CHIEF EXECUTIVE OFFICER’S INTERESTS IN SHARES (cont’d) Note:

Millennium & Copthorne Hotels New Zealand Limited is an indirect subsidiary of M&C, a subsidiary of City Developments Limited. City Developments Limited is the holding company of the Company. The Directors of the Company consider Hong Leong Investment Holdings Pte. Ltd. to be the Company’s ultimate holding company.

(b) Pursuant to Millennium & Copthorne Hotels Long Term Incentive Plan (the “LTIP”) approved by shareholders of M&C on 4 May 2006, the following persons were awarded Performance Share Awards of ordinary shares of 30 pence each as follows:

Name of Director Lawrence Yip Wai Lam

Name of Chief Executive Officer Wong Hong Ren

Note:

(c)

Date Awarded

Number of Performance Shares

Vesting Date

11/09/2013 04/04/2014

6,490 8,980

11/09/2016 04/04/2017

Date Awarded

Number of Performance Shares

Vesting Date

11/09/2013 04/04/2014

175,834 173,796

11/09/2016 04/04/2017

Under the terms of the LTIP, M&C is permitted to make both Performance Share Awards and Deferred Share Bonus Awards to an employee (including an Executive Director) of M&C or its subsidiaries.

Save as disclosed herein, as at 31 December 2015, none of the Directors and the Chief Executive Officer of the Company or their associates were interested or had any short position in any shares, underlying shares or debentures of the Company or any of its associated corporations that was required to be recorded under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

SUBSTANTIAL SHAREHOLDERS As at 31 December 2015, the following persons were interested in 5% or more of the issued share capital of the Company as recorded in the register required to be kept under Section 336 of the SFO:

Name of Shareholder eMpire Investments Limited City Developments Limited Hong Leong Holdings Limited Hong Leong Investment Holdings Pte. Ltd. Davos Investment Holdings Private Limited Kwek Leng Kee Farallon Capital Offshore Investors, Inc. Aberdeen Asset Management Asia Ltd. Aberdeen Asset Management plc and its Associates (together “The AAM Group”) on behalf of accounts managed by The AAM Group Noonday G.P. (U.S.), LLC

Number of Shares Held 190,523,819 200,854,743 21,356,085 230,866,817 230,866,817 230,866,817 35,232,850 23,052,000 23,052,000 22,321,306

Notes

(1) (2) (3) (4) (5)

(6)

Percentage Holding in the Company 49.82% 52.52% 5.58% 60.37% 60.37% 60.37% 9.21% 6.03% 6.03% 5.84%

City e-Solutions Limited Annual Report 2015

31

Directors’ Report

for the year ended 31 December 2015

SUBSTANTIAL SHAREHOLDERS (cont’d) Notes: (1)

Of the 200,854,743 shares beneficially owned by wholly-owned subsidiaries of City Developments Limited representing approximately 52.52% of the issued share capital of the Company, 190,523,819 shares are held by eMpire Investments Limited.

(2) The interests of City Developments Limited and Hong Leong Holdings Limited in 200,854,743 shares and 21,356,085 shares, respectively, are included in the aggregate number of shares disclosed. (3)

The deemed interest of Hong Leong Investment Holdings Pte. Ltd. in 230,866,817 shares, representing approximately 60.37% of the issued share capital of the Company, is included in the aggregate number of shares disclosed.

(4)

Mr. Kwek Leng Kee is deemed to have an interest in the 230,866,817 shares in which Davos Investment Holdings Private Limited (“Davos”) is deemed to have an interest in, by virtue of his entitlement to exercise or control the exercise of one-third or more of the voting power at general meetings of Davos.

(5)

Farallon Capital Offshore Investors, Inc is interested in these shares in its capacity as the beneficial owner.

(6)

Aberdeen Asset Management plc is interested in these shares in its capacity as the investment manager and includes shares in which wholly-owned controlled corporations of Aberdeen Asset Management plc are interested.

Save as stated above, no person or corporation was interested in or had a short position in the shares or underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO as at 31 December 2015. INDEMNITY OF DIRECTORS Pursuant to the Articles of Association, every Director or other officer of the Company shall be entitled to be indemnified out of the assets of the Company against all losses or liabilities which he may sustain or incur in or about the execution of the duties of his office or otherwise in relation thereto, and no Director or other officer shall be liable for any loss, damages or misfortune which may happen to or be incurred by the Company in the execution of the duties of his office or in relation thereto. The Company has arranged appropriate Directors’ and officers’ liability insurance coverage for the Directors and officers of the Company during the year.

City e-Solutions Limited Annual Report 2015

32

Directors’ Report

for the year ended 31 December 2015

DIRECTORS’ INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS No transaction, arrangement or contract of significance to which the Company, or any of its holding company, subsidiaries or fellow subsidiaries was a party, and in which a director of the Company had a material interest, subsisted at the end of the year or at any time during the year. ARRANGEMENTS TO ACQUIRE SHARES Save as disclosed herein, at no time during the year was the Company or any of its subsidiaries, fellow subsidiaries or holding company a party to any arrangements to enable any Director of the Company to acquire benefits by means of acquisition of shares in or debentures of the Company or any other body corporate. CONTROLLING SHAREHOLDERS’ INTEREST Save as disclosed herein, apart from transactions carried out in the normal course of business, there were no contracts of significance between the Company or any of its subsidiaries and a controlling shareholder or any of its subsidiaries or any contracts of any significance for the provision of services to the Company or any of its subsidiaries by a controlling shareholder or any of its subsidiaries. CONNECTED TRANSACTIONS Provision of Property Management Services and Reservation Services Property Management Services and Reservation Services are provided by the Group to Owners of Hotels, being indirect wholly-owned subsidiaries of M&C. M&C is a subsidiary of the City Developments Limited, a controlling shareholder of the Company. Details of the transactions were set out in the press announcement dated 5 March 2014. The cap amount for Property Management Services and Reservation Services is HK$9.5 million for each of the three financial years commencing from 1 January 2014 and ending 31 December 2016. The total revenue generated from the provision of Property Management Services and Reservation Services for the year ended 31 December 2015 amounted to HK8.9 million (2014: HK$7.1 million). All the independent non-executive Directors have reviewed the Continuing Connected Transactions in the 2015 financial year and confirmed that those transactions had been entered into: (i)

in the ordinary and usual course of business of the Group;

(ii)

either on normal commercial terms or, better; and

(iii)

according to the agreement governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole.

City e-Solutions Limited Annual Report 2015

33

Directors’ Report

for the year ended 31 December 2015

CONNECTED TRANSACTIONS (cont’d) The auditors of the Company, KPMG LLP, have confirmed in a letter to the Board that nothing has come to their attention that caused them to believe that the Continuing Connected Transactions in the 2015 financial year: (i)

had not been approved by the Board of the Company;

(ii)

were not, in all material respects, in accordance with the pricing policies of the Group if the transactions involve the provision of goods or services by the Group;

(iii)

were not entered into in all material respects in accordance with the relevant agreement governing such transactions; and

(iv) had exceeded the cap amount of HK$9.5 million disclosed in the announcement of the Company dated 5 March 2014. Other Related Party Transactions Other material related party transactions are set out in note 31 to the financial statements, which either fall under the definition of “Continuing Connected Transactions” in Chapter 14A of the Listing Rules and are exempted under the Listing Rules or does not fall into the definition of “connected transaction” or “continuing connected transaction”. SERVICE CONTRACTS OF DIRECTORS None of the Directors has a service contract with the Company or its subsidiaries. PRE-EMPTIVE RIGHTS Under present Cayman Islands laws and the Articles of Association of the Company, no pre-emptive rights are imposed which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders. PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year. SUFFICIENCY OF PUBLIC FLOAT Based on information that is publicly available to the Company and within the knowledge of its Directors as at the date of this annual report, the Directors confirm that the Company has maintained the amount of public float as required under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

City e-Solutions Limited Annual Report 2015

34

Directors’ Report

for the year ended 31 December 2015

EMPLOYEE RETIREMENT BENEFIT Details of the Group’s employee retirement benefits are shown in note 25 to the financial statements. CONFIRMATION OF INDEPENDENCE The Company has received from each of the independent non-executive Directors an annual confirmation of independence pursuant to Rule 3.13 of the Listing Rules and considers all the independent non-executive Directors to be independent. AUDITORS KPMG LLP will retire and, being eligible, have offered themselves for re-appointment. A resolution for the re-appointment of KPMG LLP as auditors of the Company is to be proposed at the forthcoming Annual General Meeting.

On behalf of the Board

KWEK LENG BENG Chairman 24 February 2016

City e-Solutions Limited Annual Report 2015

35

Independent Auditor’s Report

to the Members of City e-Solutions Limited (incorporated in the Cayman Islands with limited liability)

We have audited the consolidated financial statements of City e-Solutions Limited (the “Company”) and its subsidiaries (together the “Group”) set out on pages 36 to 100, which comprise the consolidated statement of financial position as at 31 December 2015, the consolidated statement of profit or loss, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory information. DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR’S RESPONSIBILITY Our responsibility is to express an opinion on these consolidated financial statements based on our audit. This report is made solely to you, as a body, in accordance with section 405 of the Hong Kong Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing.Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2015 and of the Group’s financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the Hong Kong Companies Ordinance.

KPMG LLP Public Accountants and Chartered Accountants 16 Raffles Quay #22-00 Hong Leong Building Singapore 048581 24 February 2016

City e-Solutions Limited Annual Report 2015

36

Consolidated Statement of Profit or Loss for the year ended 31 December 2015

Note Revenue Cost of sales Gross profit Other net losses Administrative expenses Loss from operating activities Finance costs Share of profit of a joint venture Share of profit of associates Loss before taxation Income tax (expense)/credit

2

3

4

4 5a

Loss for the year Attributable to: Equity shareholders of the Company Non-controlling interests

8

Loss for the year

Earnings per share Basic losses per share

The notes on pages 44 to 100 form part of these financial statements.

9

2015 HK$’000

2014 HK$’000

92,207 (18,175) 74,032 (25,316) (96,720) (48,004) (1,542) 1,008 202 (48,336) (13,638)

100,130 (18,457) 81,673 (559) (105,383) (24,269) (1,582) 1,489 884 (23,478) 4,964

(61,974)

(18,514)

(55,067) (6,907)

(18,978) 464

(61,974)

(18,514)

HK cents

HK cents

(14.40)

(4.96)

City e-Solutions Limited Annual Report 2015

37

Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2015

Note Loss for the year Other comprehensive income for the year (after taxation): Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of foreign operations Exchange differences on monetary item forming net investment in a foreign operation Reclassification adjustment of exchange differences to profit or loss on striking-off of subsidiary Total comprehensive income for the year Attributable to: Equity shareholders of the Company Non-controlling interests Total comprehensive income for the year

The notes on pages 44 to 100 form part of these financial statements.

2015 HK$’000

2014 HK$’000

(61,974)

(18,514)

(306)

206

(31)

(18)

10

(2,779)

–

(65,090)

(18,326)

(58,131) (6,959)

(18,802) 476

(65,090)

(18,326)

City e-Solutions Limited Annual Report 2015

38

Consolidated Statement of Financial Position as at 31 December 2015

Note Non-current assets Property, plant and equipment Intangible assets Goodwill Available-for-sale financial assets Long term bank deposits Interest in associates Deferred tax assets Total non-current assets Current assets Trading securities Trade and other receivables Short term bank deposits Current tax recoverable Cash and cash equivalents Current liabilities Trade and other payables Interest-bearing borrowings Provision for taxation

12 13 14 15 17 18

19 20 5c 21

22 23

2015 HK$’000

2014 HK$’000

43,351 8,167 8,934 32,985 3,797 8,322 10,183 115,739

41,904 10,873 8,942 33,016 9,780 8,880 24,632 138,027

87,498 32,507 5,974 2,681 365,481

111,197 30,274 17,101 4,630 372,824

494,141

536,026

(29,461) (899) (22)

(29,924) (969) –

(30,382) Net current assets Total assets less current liabilities

463,759 579,498

Non-current liabilities Dividends received in excess of earnings from equity-method accounted joint venture

24

Interest-bearing borrowings

23

NET ASSETS

The notes on pages 44 to 100 form part of these financial statements.

(19,487) (29,591)

(30,893) 505,133 643,160

(17,256) (30,394)

(49,078)

(47,650)

530,420

595,510

City e-Solutions Limited Annual Report 2015

39

Consolidated Statement of Financial Position as at 31 December 2015

Note CAPITAL AND RESERVES Share capital Reserves Total equity attributable to equity shareholders of the Company Non-controlling interests

27

Approved and authorised for issue by the board of directors on 24 February 2016.

Gan Khai Choon Director

The notes on pages 44 to 100 form part of these financial statements.

2014 HK$’000

382,450 109,653 492,103 38,317

382,450 167,784 550,234 45,276

530,420

595,510

26

TOTAL EQUITY

Kwek Leng Beng Chairman

2015 HK$’000

City e-Solutions Limited Annual Report 2015

40

Consolidated Statement of Changes in Equity for the year ended 31 December 2015

Attributable to equity shareholders of the Company Capital NonShare redemption Exchange Revenue controlling capital reserve reserve reserve Total interests HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Balance at 1 January 2014

Total equity HK$’000

382,450

676

2,295

183,615

569,036

44,800

613,836

(Loss)/Profit for the year

–

–

–

(18,978)

(18,978)

464

(18,514)

Other comprehensive income Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of foreign operations Exchange differences on monetary item forming net investment in a foreign operation Total other comprehensive income

–

–

194

–

194

12

206

–

–

(18)

–

(18)

–

(18)

–

–

176

–

176

12

188

Total comprehensive income for the year

–

–

176

(18,978)

(18,802)

476

(18,326)

382,450

676

2,471

164,637

550,234

45,276

595,510

Changes in equity for 2014:

Balance at 31 December 2014

The notes on pages 44 to 100 form part of these financial statements.

City e-Solutions Limited Annual Report 2015

41

Consolidated Statement of Changes in Equity for the year ended 31 December 2015

Attributable to equity shareholders of the Company Capital NonShare redemption Exchange Revenue controlling capital reserve reserve reserve Total interests HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Balance at 1 January 2015

Total equity HK$’000

382,450

676

2,471

164,637

550,234

45,276

595,510

–

–

–

(55,067)

(55,067)

(6,907)

(61,974)

–

–

(254)

–

(254)

(52)

(306)

–

–

(31)

–

(31)

–

(31)

–

–

(2,779)

–

(2,779)

–

(2,779)

–

–

(3,064)

–

(3,064)

(52)

(3,116)

–

–

(3,064)

(55,067)

(58,131)

(6,959)

(65,090)

382,450

676

(593)

109,570

492,103

38,317

530,420

Changes in equity for 2015: Loss the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of foreign operations Exchange differences on monetary item forming net investment in a foreign operation Reclassification adjustment of exchange differences to profit or loss on striking-off of subsidiary Total other comprehensive income Total comprehensive income for the year Balance at 31 December 2015

The notes on pages 44 to 100 form part of these financial statements.

City e-Solutions Limited Annual Report 2015

42

Consolidated Statement of Cash Flows for the year ended 31 December 2015

2015 HK$’000

2014 HK$’000

5a

(61,974) 13,638 (48,336)

(18,514) (4,964) (23,478)

4 4 2 4 3 3 4 2 3

2,697 3,527 (1,860) 1,542 100 (2,779) – (3,313) 8,814

2,699 2,824 (3,379) 1,582 (27) – 23 (2,484) 11,561

3

19,902 (1,008) (202)

(6,631) (1,489) (884)

Note Operating activities Loss for the year Income tax expense/(credit) Loss before taxation Adjustments for: Amortisation of intangible assets Depreciation of property, plant and equipment Dividend income Finance costs Loss/(Gain) on disposal of property, plant and equipment Gain on striking-off a dormant subsidiary Impairment loss on intangible assets Interest income Net realised and unrealised foreign exchange loss Net realised and unrealised valuation loss/(gain) on trading securities Share of profit of a joint venture Share of profit of associates (Reversal)/Recognition of impairment loss on trade and other receivables

(380)

2,342

Operating loss before changes in working capital

27,040 (21,296)

6,137 (17,341)

Changes in working capital Trade and other receivables Trade and other payables Cash used in operations

(2,157) (659) (24,112)

2,055 (4,997) (20,283)

3,519 1,860 2,759

2,245 3,379 249

(15,974)

(14,410)

Interest received Dividend received Tax refunded – overseas tax Net cash used in operating activities

The notes on pages 44 to 100 form part of these financial statements.

4

City e-Solutions Limited Annual Report 2015

43

Consolidated Statement of Cash Flows for the year ended 31 December 2015

2015 HK$’000

2014 HK$’000

Investing activities Dividends received from a joint venture Dividends received from associates Decrease in bank deposits Payment for purchase of property, plant and equipment Payment for purchase of trading securities Proceeds from disposal of property, plant and equipment Proceeds from sale of trading securities

3,255 674 17,110 (4,437) (512) – 1,492

28,090 644 17,726 (2,823) (5,599) 42 10,348

Net cash generated from investing activities

17,582

48,428

Financing activities Decrease/(Increase) in cash pledged Interest paid Repayment of interest-bearing borrowings

730 (1,418) (1,627)

(745) (1,458) (893)

Net cash used in financing activities

(2,315)

(3,096)

(707)

30,922

Cash and cash equivalents at 1 January

370,870

346,744

Effect of foreign exchange rate changes

(5,906)

(6,796)

364,257

370,870

Note

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at 31 December

The notes on pages 44 to 100 form part of these financial statements.

21

City e-Solutions Limited Annual Report 2015

44

Notes to the Financial Statements 31 December 2015

These notes form an integral part of the financial statements. 1.

SIGNIFICANT ACCOUNTING POLICIES (a) Statement of Compliance

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Group is set out below.



The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. Note 1(c) provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.

(b) Basis of Preparation of the Financial Statements

The consolidated financial statements for the year ended 31 December 2015 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates and joint arrangements.



The measurement basis used in the preparation of the financial statements is the historical cost basis except that the following assets and liabilities are stated at their fair value as explained in the accounting policies set out below: •

financial instruments classified as available-for-sale or as trading securities (Note 1(i))



The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.



The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.



Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and major sources of estimation uncertainties are discussed in note 35.

City e-Solutions Limited Annual Report 2015

45

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (c) Changes in Accounting Policies

The HKICPA has issued the following amendments to HKFRS that are effective for the current accounting period of the Group: • • •

Amendments to HKAS 19, Employee benefits: Defined benefit plans: Employee contributions Annual Improvements to HKFRSs 2010-2012 Cycle Annual Improvements to HKFRSs 2011-2013 Cycle

The adoption of the above amendments did not have any significant effect on the financial statements.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

(d) Subsidiaries and Non-controlling Interests

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered.



An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.



Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net identifiable assets.



Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statement of profit or loss and the consolidated statement of profit or loss and other comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated statement of financial position in accordance with note 1(o) or 1(q) depending on the nature of the liability.



Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.

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46

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (d) Subsidiaries and Non-controlling Interests (cont’d)

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is regarded as the fair value on initial recognition of a financial asset (Note 1(i)) or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture (Note 1(g)).



In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (Note 1(m)), unless the investment is classified as held for sale (or included in a disposal group that is classified as held for sale).

(e) Joint Arrangements

A joint arrangement is a contractual arrangement between the Group and other parties, where they have contractually agreed to share joint control, which exists only when decisions about relevant activities require the unanimous consent of the parties sharing control. A joint arrangement is either a joint operation or a joint venture.

(f)

Joint Operations



A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.



The Group recognises its interest in the joint operation by combining the assets, liabilities, revenues and expenses relating to its interest with similar items on a line by line basis. Consistent accounting policies are applied for like transactions and events in similar circumstances.



The Group recognises its interest in the joint operation from the date that joint control commences until the date on which the Group ceases to have joint control over the joint operation.



Unrealised profits and losses resulting from transactions between the Group and its joint operations are eliminated to the extent of the Group’s interest in the joint operation, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.



When the Group ceases to have joint control over the joint operation, it is accounted for as a disposal of the entire interest in the joint operation, with a resulting gain or loss being recognised in profit or loss.

(g) Associates and Joint Ventures

An associate is an entity in which the Group or Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.



A joint venture is an arrangement whereby the Group or Company and other parties contractually agree to share control of the arrangement, and have rights to the net assets of the arrangement.

City e-Solutions Limited Annual Report 2015

47

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (g) Associates and Joint Ventures (cont’d)

An investment in an associate or joint venture is accounted for in the consolidated financial statements under the equity method, unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisitiondate fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (Note 1(m)). Any acquisition-date excess over cost, the Group’s share of the post-acquisition, post-tax results of the investee and any impairment losses for the year are recognised in the consolidated statement of profit or loss, whereas the Group’s share of the post-acquisition post-tax items of the investee’s other comprehensive income is recognised in the consolidated statement of profit or loss and other comprehensive income.



When the Group’s share of losses exceeds its interest in the associate or joint venture, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate or the joint venture.



Unrealised profits and losses resulting from transactions between the Group and its associates and joint venture are eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.



If an investment in an associate becomes an investment in a joint venture or vice versa, retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method.



In all other cases, when the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 1(i)).



In the Company’s statement of financial position, investments in associates and joint ventures are stated at cost less impairment losses (Note 1(m)), unless classified as held for sale (or included in a disposal group that is classified as held for sale).

(h) Goodwill Goodwill represents the excess of: (i)

the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over

(ii)

the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.

City e-Solutions Limited Annual Report 2015

48

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (h) Goodwill (cont’d)

When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.



Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash-generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (Note 1(m)).



On disposal of a cash-generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

(i)

Other Investments in Debt and Equity Securities



The Group’s and the Company’s policies for investments in debt and equity securities, other than investments in subsidiaries, associates and joint ventures, are as follows:



Investments in debt and equity securities are initially stated at fair value, which is their transaction price unless it is determined that the fair value at initial recognition differs from the transaction price and that fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses only data from observable markets. Cost includes attributable transaction costs, except where indicated otherwise below. These investments are subsequently accounted for as follows, depending on their classification:



Investments in securities held for trading are classified as current assets. Any attributable transaction costs are recognised in profit or loss as incurred. At the end of each reporting date the fair value is remeasured, with any resultant gain or loss being recognised in profit or loss. The net gain or loss recognised in profit or loss does not include any dividends or interest earned on these investments as these are recognised in accordance with the policies set out in note 1(t)(iv) and 1(t)(v), respectively.



Investments in securities which do not fall into held-for-trading or held-to-maturity categories are classified as availablefor-sale securities. At the end of each reporting period, the fair value is remeasured, with any resultant gain or loss being recognised in other comprehensive income and accumulated separately in equity in the fair value reserve. The cumulative gain or loss in fair value reserve is reclassified to profit or loss when derecognised or impaired (Note 1(m)). As an exception to this, investments in equity securities that do not have a quoted price in an active market for an identical instrument and whose fair value cannot otherwise be reliably measured are recognised in the statement of financial position at cost less impairment losses (Note 1(m)). Dividend income from equity securities and interest income from debt securities calculated using the effective interest method are recognised in profit or loss in accordance with the policies set out in notes 1(t)(iv) and 1(t)(v), respectively. Foreign exchange gains and losses resulting from changes in the amortised cost of debt securities are also recognised in profit or loss.



Investments are recognised/derecognised on the date the Group commits to purchase/sell the investments or they expire.

City e-Solutions Limited Annual Report 2015

49

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (j)

Property, Plant and Equipment



Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (Note 1(m)).



Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.



Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:

Building - 2.6%

Plant, machinery and equipment (comprising principally furniture and fixtures and office equipment)

-

6% to 33.33%

Motor vehicles - 20%

No depreciation is provided on freehold land.



Both the useful life of an asset and its residual value, if any, are reviewed annually.

(k)

Intangible Assets (Other Than Goodwill)

Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (Note 1(m)).



Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources and the intention to complete development. The expenditure capitalised includes the costs of materials, direct labour, and an appropriate proportion of overheads and borrowing costs, where appropriate. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses (Note 1(m)). Other development expenditure is recognised as an expense in the period in which it is incurred.



Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortised from the date they are available for use and their estimated useful lives are as follows: - Trade name 1 to 15 years - Trademarks 15 years - Franchise application 10 years - Technology 5 to 11 years - Customer relations 7 to 11 years Both the period and method of amortisation are reviewed annually.

City e-Solutions Limited Annual Report 2015

50

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (l)

Leased Assets



An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease. (i)

Classification of assets leased to the Group



Assets that are held by Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.

(ii)

Assets acquired under finance leases



Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments, of such assets are recognised as property, plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation is provided at rates which write off the cost of the assets over the term of relevant lease or, where it is likely the Group will obtain ownership of the asset, the life of the asset, as set out in note 1(j). Impairment losses are accounted for in accordance with the accounting policy as set out in note 1(m). Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(iii)

Operating lease charges



Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(m) Impairment of Assets (i)

Impairment of investments in debt and equity securities and other receivables



Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

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51

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (m) Impairment of Assets (cont’d) (i)

Impairment of investments in debt and equity securities and other receivables (cont’d) -

significant financial difficulty of the debtor;

-

a breach of contract, such as a default or delinquency in interest or principal payments;

-

it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;

-

significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and

-

a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

If any such evidence exists, any impairment loss is determined and recognised as follows: -

For investments in associates and joint ventures accounted for under the equity method in the consolidated financial statements (Note 1(g)), the impairment loss is measured by comparing the recoverable amount of the investment with its carrying amount in accordance with note 1(m)(ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with note 1(m)(ii).

-

For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where these financial assets share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.



If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

-

For available-for-sale securities carried at fair value, the cumulative loss that has been recognised in the fair value reserve is reclassified to profit or loss. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss.



Impairment losses recognised in profit or loss in respect of available-for-sale equity securities carried at fair value are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognised in other comprehensive income.

City e-Solutions Limited Annual Report 2015

52

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (m) Impairment of Assets (cont’d) (i)

Impairment of investments in debt and equity securities and other receivables (cont’d)

Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognised. Reversals of impairment losses in such circumstances are recognised in profit or loss.

-

For unquoted available-for-sale equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities carried at cost are not reversed.



Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade receivables directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

(ii)

Impairment of other assets



Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased: - - - -



property, plant and equipment; intangible assets; goodwill; and investments in subsidiaries, associates and joint ventures in the Company’s statement of financial position.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment. -

Calculation of recoverable amount



The recoverable amount of an asset is the greater of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cashgenerating unit).

City e-Solutions Limited Annual Report 2015

53

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (m) Impairment of Assets (cont’d) (ii)

Impairment of other assets (cont’d) -

Recognition of impairment losses



An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro-rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measureable) or value in use (if determinable).

-

Reversal of impairment losses



In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.



A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(iii)

Interim financial reporting and impairment



Under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the Group is required to prepare an interim financial report in compliance with HKAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (Notes 1(m)(i) and 1(m)(ii)).



Impairment losses recognised in an interim period in respect of goodwill and available-for-sale equity securities are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates. Consequently, if the fair value of an available-for-sale equity security increases in the remainder of the annual period, or in any other period subsequently, the increase is recognised in other comprehensive income and not profit or loss.

(n) Trade and Other Receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less allowance for impairment of doubtful debts (Note 1(m)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts (Note 1(m)).

City e-Solutions Limited Annual Report 2015

54

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (o) Trade and Other Payables

Trade and other payables are initially recognised at fair value and are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(p) Cash and Cash Equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.

(q) Interest-bearing Borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

(r)

Employee Benefits (i)

Short-term employee benefits and contributions to defined contribution retirement plans



Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(ii)

Termination benefits



Termination benefits are recognised at the earlier of when the Group can no longer withdraw the offer of those benefits and when it recognises restructuring costs involving the payment of termination benefits.

(s) Income Tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.



Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.



Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

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55

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (s) Income Tax (cont’d)

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.



The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.



The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted.



The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available.



Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.



Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met: -

in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

-

in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either: -

the same taxable entity; or

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56

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (s) Income Tax (cont’d) -

different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.



In the ordinary course of business, there are many transactions and calculations for which the ultimate tax treatment is uncertain. Therefore, the Group recognises tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognised when the Group believes that certain positions may not be fully sustained upon review by tax authorities, despite the Group’s belief that its tax return positions are supportable. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of multifaceted judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact tax expense in the period that such a determination is made.

(t)

Revenue Recognition



Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the profit or loss as follows: (i)

Hotel management revenue



Revenue arising from hotel management services, reservation distribution and payroll services is recognised when the relevant services are delivered.

(ii)

Hotel operations Revenue from hotel operations is recognised on an accrual basis, upon rendering of the relevant services.

(iii)

Insurance and risk management revenue



Revenue arising from insurance and risk management services, where the Group acts as an agent and does not assume underwriting risk, is recognised based on the net amount retained or the amount billed to the customer less the amount paid to suppliers.



For risk management services where the Company acts as an agent and does not assume any underwriting risk, revenue is recorded as the net amount earned as fees rather than the gross amount of insurance premiums and related costs.

(iv) Dividends

Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established.



Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend.

City e-Solutions Limited Annual Report 2015

57

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (t)

Revenue Recognition (cont’d) (v)

Interest income Interest income is recognised as it accrues using the effective interest method.

(u) Translation of Foreign Currencies (i)

Foreign currency transactions



Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting year. Exchange gains and losses are recognised in profit or loss.



Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.

(ii)

Translation of foreign currencies



The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items, including goodwill arising on consolidation of foreign operations acquired on or after 1 January 2005, are translated into Hong Kong dollars at the closing foreign exchange rates at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in exchange reserve. Goodwill arising on consolidation of a foreign operation acquired before 1 January 2005 is translated at the foreign exchange rate that applied at the date of acquisition of the foreign operation.



On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to profit or loss when the profit or loss on disposal is recognised.

(iii)

Net investment in a foreign operation



Exchange differences arising from monetary items that in substance form part of the Company’s net investment in a foreign operation are recognised in the Company’s statement of profit or loss. Such exchange differences are reclassified to equity in the consolidated financial statements. When the foreign operation is disposed of, the cumulative amount in equity is transferred to the statement of profit or loss as an adjustment to the profit or loss arising on disposal.

City e-Solutions Limited Annual Report 2015

58

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (v) Finance Costs

Finance costs comprise interest expenses on borrowings and expenses incurred in connection with the arrangement of debt facilities.



Interest expenses on borrowings are recognised in the statement of profit or loss using the effective interest method. Expenses incurred in connection with the arrangement of debt facilities are recognised in the statement of profit or loss on an effective interest basis over the period for which the debt facilities are granted.

(w) Related Parties (a)

(b)

A person, or a close member of that person’s family, is related to the Group if that person: (i)

has control or joint control over the Group;

(ii)

has significant influence over the Group; or

(iii)

is a member of the key management personnel of the Group or the Group’s parent.

An entity is related to the Group if any of the following conditions applies: (i)

The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii)

One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of the Group of which the other entity is a member).

(iii)

Both entities are joint ventures of the same third party.

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v)

The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.

(vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the Group’s parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

City e-Solutions Limited Annual Report 2015

59

Notes to the Financial Statements 31 December 2015

1.

SIGNIFICANT ACCOUNTING POLICIES (cont’d) (x) Segment Reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.



Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

(y) Provisions and Contingent Liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group or the Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.



Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

2. REVENUE

The principal activities of the Company comprise those of investment holding and the provision of consultancy services.



Revenue of the Group comprises revenue from hospitality related services, dividend income and interest income. The amount of each significant category of revenue recognised during the year is as follows:

Dividend income Hospitality related services Interest income

2015 HK$’000

2014 HK$’000

1,860 87,034 3,313

3,379 94,267 2,484

92,207

100,130

Further details regarding the Group’s principal activities are disclosed in note 28 to these financial statements.

City e-Solutions Limited Annual Report 2015

60

Notes to the Financial Statements 31 December 2015

3.

OTHER NET LOSSES

Net realised and unrealised foreign exchange loss Net realised and unrealised valuation (loss)/gain on trading securities Gain on striking-off a dormant subsidiary (Loss)/Gain on disposal of property, plant and equipment Miscellaneous proceeds

2015 HK$’000

2014 HK$’000

(8,814) (19,902) 2,779 (100) 721

(11,561) 6,631 – 27 4,344

(25,316)

(559)



Miscellaneous proceeds for the year ended 31 December 2014 comprised mainly one-time proceeds received as final settlement of a contractual obligation arising from the acquisition of Whiteboard Labs, LLC.

4.

LOSS BEFORE TAXATION Loss before taxation is arrived at after charging/(crediting):

Finance costs Amortisation of capitalised transaction costs Interest expenses on borrowings

Staff costs Salaries, wages and other benefits Other items Amortisation of intangible assets Auditors’ remuneration - audit services - tax services - non-audit services: - review of continuing connected transactions - review of half-year financial statements - review of the compilation of financial information Depreciation of property, plant and equipment Impairment loss on intangible assets (Reversal)/Recognition of impairment loss on trade and other receivables Operating lease charges – rental of properties

2015 HK$’000

2014 HK$’000

124 1,418

124 1,458

1,542

1,582

62,956

67,177

2,697

2,699

3,798 61

3,679 1,188

55 590 155 3,527 – (380) 3,178

55 601 116 2,824 23 2,342 1,691

City e-Solutions Limited Annual Report 2015

61

Notes to the Financial Statements 31 December 2015

5.

INCOME TAX (a) Taxation in the consolidated statement of profit or loss represents:

Current tax - Overseas Provision for the year Under-provision in respect of prior years

Deferred tax Origination and reversal of temporary differences Under-provision in respect of prior years

Income tax expense/(credit)

2015 HK$’000

2014 HK$’000

(876) 85

(1,171) 23

(791)

(1,148)

13,964 465

(4,522) 706

14,429

(3,816)

13,638

(4,964)



The provision for Hong Kong Profits Tax for the year ended 31 December 2015 is calculated at 16.5% (2014: 16.5%) of the estimated assessable profits for the year. No provision has been made for Hong Kong Profits Tax, as the Group did not earn any income subject to Hong Kong Profits Tax during the year. Taxation for overseas subsidiaries has been provided on estimated assessable profits at the rates of taxation ruling in the relevant countries.



The Company is exempted from taxation in the Cayman Islands for a period of twenty years from 1989 under the provisions of Section 6 of the Tax Concessions Law (Revised) of the Cayman Islands. The tax concession was renewed for a further period of twenty years from 2 June 2009.



As at 31 December 2015, the Group had not recognised deferred tax assets in respect of tax losses of approximately HK$55.6 million (2014: HK$4.2 million) as it is not probable that there will be sufficient future taxable profits against which the Group can utilise the benefits. The tax losses do not expire under the current tax legislations.

City e-Solutions Limited Annual Report 2015

62

Notes to the Financial Statements 31 December 2015

5.

INCOME TAX (cont’d) (b) Reconciliation between tax expense/(credit) and accounting loss at applicable tax rates: 2015 HK$’000

2014 HK$’000

Loss for the year Income tax expense/(credit)

(61,974) 13,638

(18,514) (4,964)

Loss before taxation

(48,336)

(23,478)

Income tax using Hong Kong tax rates Tax effect of non-taxable income Tax effect of non-deductible expenses Effect of tax rates in foreign jurisdictions Effect of tax on non-controlling interest’s share of loss/(profit) pass through different taxpayer Effects of US federal tax credit Unrecognised deferred tax assets Under-provision in respect of prior years

(7,974) (55) 5,703 (3,092)

(3,874) (2,002) 3,611 (2,319)

450 (1,473) 19,529 550

(217) (892) – 729

Actual income tax expense/(credit)

13,638

(4,964)

2015 HK$’000

2014 HK$’000

899 1,782

1,179 3,451

2,681

4,630

(c) Current taxation in the statement of financial position represents:

Recoverable for overseas tax for the year Recoverable overseas tax relating to prior years

City e-Solutions Limited Annual Report 2015

63

Notes to the Financial Statements 31 December 2015

6.

DIRECTORS’ REMUNERATION



Directors’ remuneration disclosed pursuant to section 383(1) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation is as follows:

Directors’ fees HK$’000

Salaries, allowances and benefits in kind HK$’000

Retirement scheme contributions HK$’000

Total HK$’000

375

–

–

375

88 100 50

– – –

– – –

88 100 50

Non-Executive Directors Chan Bernard Charnwut Ronald Nathaniel Issen

194 100

– –

– –

194 100

Independent Non-Executive Directors Dr. Lo Ka Shui Lee Jackson @ Li Chik Sin Teoh Teik Kee

100 194 288

– – –

– – –

100 194 288

1,489

–

–

1,489

–

297

–

297

–

2,608

–

2,608

–

2,905

–

2,905

2015 Executive Directors Kwek Leng Beng Kwek Leng Joo (passed away on 16 November 2015) Gan Khai Choon Lawrence Yip Wai Lam

Chief Executive Officer* Sherman Kwek Eik Tse (stepped down on 2 March 2015) Wong Hong Ren (appointed on 2 March 2015)

City e-Solutions Limited Annual Report 2015

64

Notes to the Financial Statements 31 December 2015

6.

DIRECTORS’ REMUNERATION (cont’d)

Directors’ fees HK$’000

Salaries, allowances and benefits in kind HK$’000

Retirement scheme contributions HK$’000

Total HK$’000

Executive Directors Kwek Leng Beng Kwek Leng Joo Gan Khai Choon Lawrence Yip Wai Lam

375 100 100 50

– – – –

– – – –

375 100 100 50

Non-Executive Directors Chan Bernard Charnwut Ronald Nathaniel Issen

194 100

– –

– –

194 100

Independent Non-Executive Directors Dr. Lo Ka Shui Lee Jackson @ Li Chik Sin Teoh Teik Kee

100 194 288

– – –

– – –

100 194 288

1,501

–

–

1,501

–

2,140

–

2,140

2014

Chief Executive Officer* Sherman Kwek Eik Tse *

In accordance with Paragraph 24 of Appendix 16 to the Hong Kong Exchange Listing Rules, references to ‘Director’ include a Chief Executive Officer who is not a director.

7. INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, none (2014: none) are directors whose emolument is disclosed in note 6. The aggregate of the emoluments in respect of the other five (2014: five) individuals are as follows:

Salaries and other emoluments Discretionary bonuses

2015 HK$’000

2014 HK$’000

8,128 153

7,197 1,348

8,281

8,545

City e-Solutions Limited Annual Report 2015

65

Notes to the Financial Statements 31 December 2015

7. INDIVIDUALS WITH HIGHEST EMOLUMENTS (cont’d) The emoluments of the five (2014: five) individuals with the highest emoluments are within the following bands:

HK$Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$2,000,001 – HK$2,500,000 HK$2,500,001 – HK$3,000,000 HK$3,000,001 – HK$3,500,000 HK$3,500,001 – HK$4,000,000

2015 Number of individuals

2014 Number of individuals

– 3 1 – 1 – –

– 2 2 1 – – –

8.

LOSS ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY



The consolidated loss attributable to equity shareholders of the Company includes a loss of HK$34,118,000 (2014: profit of HK$6,233,000) which has been dealt with in the financial statements of the Company.

9. EARNINGS PER SHARE (a) Basic losses per share

The calculation of basic losses per share is based on the loss attributable to ordinary equity shareholders of the Company of HK$55,067,000 (2014: HK$18,978,000) and on the weighted average number of ordinary shares of 382,449,524 (2014: 382,449,524 shares) in issue during the year, calculated as follows:

Weighted average number of ordinary shares at 1 January and 31 December

2015

2014

382,449,524

382,449,524

(b) Diluted losses per share Diluted losses per share is not applicable as there are no dilutive potential ordinary shares during the year.

City e-Solutions Limited Annual Report 2015

66

Notes to the Financial Statements 31 December 2015

10. OTHER COMPREHENSIVE INCOME Tax effects relating to each component of other comprehensive income 2015 Before tax amount HK$’000 Exchange differences on translation of financial statements of foreign operations Exchange differences on monetary item forming net investment in a foreign operation Reclassification adjustment of exchange differences to profit or loss on striking-off of subsidiary

2014

Tax Net of expenses tax amount HK$’000 HK$’000

Before tax amount HK$’000

Tax Net of expenses tax amount HK$’000 HK$’000

(306)

–

(306)

206

–

206

(31)

–

(31)

(18)

–

(18)

(2,779)

–

(2,779)

–

–

–

(3,116)

–

(3,116)

188

–

188

11. SEGMENT REPORTING

The Group manages its businesses by divisions, which are organised by products and services. The Group has identified the following two reportable segments based on the information that is reported internally to the Group’s most senior executive management for the purposes of resource allocation and performance assessment: - Investment holding

:

This segment relates to investments in listed equity investments, unlisted marketable equitable equity mutual funds held as trading securities and investment in an unlisted equity fund classified as available-for-sale financial assets. Currently, the Group’s equity investment portfolio includes equity securities listed on the London Stock Exchange, NASDAQ Stock Market and The Philippines Stock Exchange, Inc. and investment portfolio in United States and Hong Kong.

- Hospitality

:

This segment primarily derives the revenue from the provision of hotel management, hotel reservation, revenue management services, risk management services and procurement services to the hospitality industry as well as owning and managing hotels. Currently, the Group’s activities in this segment are carried out in the United States.

City e-Solutions Limited Annual Report 2015

67

Notes to the Financial Statements 31 December 2015

11. SEGMENT REPORTING (cont’d) (a) Segment results, assets and liabilities

For the purposes of assessing segment performance and allocating resources between segments, the Group’s most senior executive management monitors the results, assets and liabilities attributable to each reportable segment on the following bases:



Segment assets include all tangible assets, intangible assets, goodwill and current assets with the exception of deferred tax assets and current tax recoverable. Segment liabilities include interest-bearing borrowings, trade and other payables and dividends received in excess of earnings from equity-method accounted joint venture.



Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments or which otherwise arise from the depreciation or amortisation of assets attributable to those segments. Segment revenue and expenses include the Group’s share of revenue and expenses arising from the activities of the Group’s joint operation.



The measure used for reporting segment profit is “profit from operations”. In addition to receiving segment information concerning profit from operations, management is provided with segment information concerning revenue, interest income, depreciation and amortisation, impairment losses, foreign exchange gain/loss, gain/loss on trading securities and additions to non-current segment assets used by the segments in their operations.

(b) Information about reportable segments

Information regarding the Group’s reportable segments as provided to the Group’s most senior executive management for the purposes of resource allocation and assessment of segment performance for the years ended 31 December 2015 and 2014 is set out below: Investment Holding 2015 2014 HK$’000 HK$’000

Hospitality 2015 2014 HK$’000 HK$’000

Total 2015 2014 HK$’000 HK$’000

Revenue from external customers Interest income

1,860 3,127

3,379 2,227

87,034 186

94,267 257

88,894 3,313

97,646 2,484

Reportable segment revenue

4,987

5,606

87,220

94,524

92,207

100,130

(31,178)

(13,970)

(17,158)

(9,508)

(48,336)

(23,478)

1

1

6,223

5,522

6,224

5,523

(19,831)

6,755

(71)

(124)

(19,902)

6,631

(8,798) 27

(11,561) –

(16) 5,069

– 2,823

(8,814) 5,096

(11,561) 2,823

418,542

456,027

178,474

188,764

597,016

644,791

6,278

9,629

73,160

68,914

79,438

78,543

Reportable segment loss Depreciation and amortisation Net realised and unrealised valuation (loss)/gain on trading securities Net realised and unrealised foreign exchange loss Additions to non-current assets Reportable segment assets Reportable segment liabilities

City e-Solutions Limited Annual Report 2015

68

Notes to the Financial Statements 31 December 2015

11. SEGMENT REPORTING (cont’d) (c) Reconciliations of reportable segment assets and liabilities 2015 HK$’000

2014 HK$’000

Assets Reportable segment assets Deferred tax assets Current tax recoverable

597,016 10,183 2,681

644,791 24,632 4,630

Consolidated total assets

609,880

674,053

Liabilities Reportable segment liabilities Provision for taxation

79,438 22

78,543 –

Consolidated total liabilities

79,460

78,543

(d) Geographical segments

The Group’s investing activities are mainly carried out in Hong Kong. Hospitality activities are carried out by the subsidiaries based in the United States.



In presenting information on the basis of geographical segments, segment revenue in relation to investment holding is based on the geographical location of investments and segment revenue in relation to hospitality is based on the geographical location of customers. Segment assets are based on the geographical location of the assets.

(e) Geographical information 2015

Hong Kong China United States Cayman Islands Singapore

Revenue HK$’000

Non-current assets HK$’000

4,795 – 87,406 – 6

10 1,573 70,977 32,985 11

92,207

105,556

5,459 – 94,671 –

– 1,705 78,674 33,016

100,130

113,395

2014 Hong Kong China United States Cayman Islands

City e-Solutions Limited Annual Report 2015

69

Notes to the Financial Statements 31 December 2015

11. SEGMENT REPORTING (cont’d) (e) Geographical information (cont’d) Major customer

Revenue from the largest customer of the Group’s hospitality segment amounting to HK$8,884,000 (2014: HK$7,455,000) represents approximately 10% (2014: 7%) of the Group’s total revenue.

12. PROPERTY, PLANT AND EQUIPMENT

Freehold land HK$’000

Building HK$’000

Plant, machinery and equipment HK$’000

Cost At 1 January 2014 Additions Disposals Written off Reclassifications between assets categories Exchange adjustments

5,058 – – – – –

34,457 132 – – (108) 22

13,910 2,691 (2,650) (1,015) 108 6

563 – (563) – – –

53,988 2,823 (3,213) (1,015) – 28

At 31 December 2014

5,058

34,503

13,050

–

52,611

At 1 January 2015 Additions Disposals Exchange adjustments

5,058 – – –

34,503 698 – (37)

13,050 4,398 (397) (4)

– – – –

52,611 5,096 (397) (41)

At 31 December 2015

5,058

35,164

17,047

–

57,269

Motor vehicles HK$’000

Total HK$’000

City e-Solutions Limited Annual Report 2015

70

Notes to the Financial Statements 31 December 2015

12. PROPERTY, PLANT AND EQUIPMENT (cont’d)

Freehold land HK$’000

Building HK$’000

Plant, machinery and equipment HK$’000

Accumulated depreciation and impairment losses At 1 January 2014 Depreciation for the year Disposals Written off Reclassifications between assets categories Exchange adjustments

28 – – – – –

2,505 915 – – (68) 1

8,989 1,909 (2,635) (1,015) 68 10

563 – (563) – – –

12,085 2,824 (3,198) (1,015) – 11

At 31 December 2014

28

3,353

7,326

–

10,707

At 1 January 2015 Depreciation for the year Disposals Exchange adjustments

28 – – –

3,353 961 – (3)

7,326 2,566 (297) (16)

– – – –

10,707 3,527 (297) (19)

At 31 December 2015

28

4,311

9,579

–

13,918

Motor vehicles HK$’000

Total HK$’000

Net book value At 1 January 2014

5,030

31,952

4,921

–

41,903

At 31 December 2014

5,030

31,150

5,724

–

41,904

At 31 December 2015

5,030

30,853

7,468

–

43,351

Freehold land is situated outside Hong Kong and is being held for own use.

During the year ended 31 December 2015, the Group acquired property, plant and equipment amounting to HK$5,096,000 (2014: HK$2,823,000), of which HK$659,000 (2014: nil) was acquired via finance leases. The cash outflow on acquisition of property, plant and equipment amounted to HK$4,437,000 (2014: HK$2,823,000).



At 31 December 2015, property, plant and equipment of the Group with a carrying amount of HK$37,848,000 (2014: HK$38,348,000) were pledged as security to secure bank loans (Note 23).

City e-Solutions Limited Annual Report 2015

71

Notes to the Financial Statements 31 December 2015

13. INTANGIBLE ASSETS

Trade name Trademarks HK$’000 HK$’000



Franchise application Technology HK$’000 HK$’000

Customer relations HK$’000

Total HK$’000

Cost At 1 January 2014 Written off Exchange adjustments

1,604 – 1

1,056 (23) –

329 – 1

14,921 – 13

1,674 – 1

19,584 (23) 16

At 31 December 2014

1,605

1,033

330

14,934

1,675

19,577

At 1 January 2015 Exchange adjustments

1,605 (1)

1,033 –

330 2

14,934 (18)

1,675 (1)

19,577 (18)

At 31 December 2015

1,604

1,033

332

14,916

1,674

19,559

Accumulated amortisation and impairment losses At 1 January 2014 Charge for the year Impairment loss Written off Exchange adjustments

190 107 – – –

1,035 – 23 (23) (2)

47 16 – – 1

4,352 2,368 – – 10

372 208 – – –

5,996 2,699 23 (23) 9

At 31 December 2014

297

1,033

64

6,730

580

8,704

At 1 January 2015 Charge for the year Exchange adjustments

297 107 4

1,033 – –

64 16 1

6,730 2,366 (21)

580 208 7

8,704 2,697 (9)

At 31 December 2015

408

1,033

81

9,075

795

11,392

Net book value At 1 January 2014

1,414

21

282

10,569

1,302

13,588

At 31 December 2014

1,308

–

266

8,204

1,095

10,873

At 31 December 2015

1,196

–

251

5,841

879

8,167

The amortisation charge for the Group’s trade name, trademarks, technology and customer relations and the Group’s share of the joint operation’s franchise application are included in “administrative expenses” in the consolidated statement of profit or loss.

City e-Solutions Limited Annual Report 2015

72

Notes to the Financial Statements 31 December 2015

14. GOODWILL HK$’000 At 1 January 2014

8,937

Translation differences

5

At 31 December 2014

8,942

Translation differences

(8)

At 31 December 2015

8,934

Impairment testing for cash-generating unit containing goodwill

For the purpose of impairment testing, goodwill is allocated to hotel operations of Sheraton Chapel Hill Hotel and hotel reservation business of Sceptre Hospitality Resources, LLC which is included in the hospitality segment. Recoverable amount determined is based on the following: (a) As at the reporting date, the Group has determined the recoverable amount of the hotel operations of Sheraton Chapel Hill Hotel based on value in use calculation. The value in use calculation is a discounted cash flow model using cash flow projections based on the most recent budgets and forecasts approved by the management covering 4 years and the discount rate of 21.10% (2014: 21.97%). The terminal value is calculated by applying an exit multiple to the projected terminal period Earnings Before Interest, Taxes, Depreciation and Amortisation (“EBITDA”) and applying the discount rate of 21.10% (2014: 21.97%). The key assumptions are those relating to risk free rate of return, current risk premium, size premium, beta, expected changes in average room rates and occupancy and direct costs. The exit multiple for the terminal value is based on the Enterprise Value/EBITDA of comparable business enterprises. (b) As at 31 December 2015, the Group determined the recoverable amount of the hotel reservation business of Sceptre Hospitality Resources, LLC based on the fair value less cost to sell method. The fair value is estimated using the market approach where a range of revenue multiples based upon a set of comparable companies were used against the revenue in 2015. As at 31 December 2014, the Group has determined the recoverable amount of the hotel reservation business of Sceptre Hospitality Resources, LLC based on value in use calculation. The value in use calculation is a discounted cash flow model using cash flow projections based on the most recent budgets and forecasts approved by the management covering 6 years and the discount rate of 40.28%. The terminal value is calculated utilising the Gordon Growth method and applying the discount rate of 40.28%. The key assumptions are those relating to risk-free rate of return, current risk premium, size premium, beta, revenue growth and costs growth. The Gordon Growth model assumes that cash flow will increase at the long-term growth rate of 4% and a capitalisation rate of 36.3%.



Management believes that any reasonable plausible changes in above key assumptions applied are not likely to cause the recoverable amounts to be lower than its carrying amount.

City e-Solutions Limited Annual Report 2015

73

Notes to the Financial Statements 31 December 2015

15. AVAILABLE-FOR-SALE FINANCIAL ASSETS 2015

2014

HK$’000

HK$’000

32,985

33,016

Available-for-sale equity securities: Unlisted shares, at cost

On 3 June 2013, the Group’s direct wholly-owned subsidiary, CES Capital Limited, had committed to make an investment of US$25.0 million (approximately HK$194.0 million) in BEA Blue Sky Real Estate Fund L.P. (the “Fund”), by way of a subscription for a limited partnership interest in the Fund. As at 31 December 2015, CES Capital Limited has contributed US$4.3 million (approximately HK$33.0 million) to the Fund.



On 15 April 2014, the investment period of the Fund was terminated in accordance with the partnership agreements. Accordingly, no further capital contributions will be called from the Group except to the extent necessary to cover, among other things, operating expenses of the Fund, to fund the payment of management fees payable by the Fund, to fund drawdown requests from the BEA/AGRE China Real Estate Fund, L.P. (the “China Fund”) to cover its operational and organisational expenses and to fund committed investments.



The Fund is a closed-ended private equity fund structured as a Cayman Islands exempted limited partnership, organised for the sole purpose of subscribing for a limited partnership interest in the China Fund. The China Fund is a real estate private equity fund established for the purpose of making investments in real estate assets and real estate-related assets in Greater China.

16. INTEREST IN A JOINT OPERATION

Line-by-line interest in net assets of joint operation that are combined to the Group, including line-by-line interest in goodwill as below Line-by-line interest in goodwill that is combined to the Group

2015 HK$’000

2014 HK$’000

10,633

10,063

1,694

1,696

Details of the Group’s net interest in the joint operation, which is accounted for in the consolidated financial statements using the accounting policy in note 1(f), are as follows:

Name of joint operation/ Principal activities

Form of business structure

Sheraton Chapel Hill hotel (Provision of hospitality related services)

Tenant-incommon agreement

Place of operation

United States of America

Proportion of ownership interest Group’s effective Held by interest subsidiary % % 43

50

City e-Solutions Limited Annual Report 2015

74

Notes to the Financial Statements 31 December 2015

16. INTEREST IN A JOINT OPERATION (cont’d)

The Group, through an indirect subsidiary, SWAN Carolina Investor, LLC (“SCI”), entered into a tenant-in-common agreement with SFI Carolina TIC SPE, LLC, a wholly-owned subsidiary of Shelbourne Falcon Investors, LP, to own an equal 50% tenant-incommon interest in Sheraton Chapel Hill hotel (the “Property”) for the purpose of owning and operating the Property as a hotel and as an investment.



The table below summarised the Group’s line-by-line interest in the results, assets and liabilities of the joint operation that had been combined into the Group’s statement of financial position and consolidated statement of profit or loss. 2015 HK$’000

2014 HK$’000

Non-current assets Current assets Non-current liabilities Current liabilities

39,801 3,380 (29,585) (2,963)

40,311 3,420 (30,326) (3,342)

Net assets

10,633

10,063

Revenue Expenses

24,925 (23,896)

24,846 (23,607)

1,029

1,239

2015 HK$’000

2014 HK$’000

8,322

8,880

Profit for the year 17. INTEREST IN ASSOCIATES

Share of net assets Details of the Group’s interests in the associates are as follows:

Proportion of ownership interest Form of business structure

Place of incorporation and operation

Issued and paid up capital US$

Group’s effective interest %

Held by subsidiary %

Cosmic Hospitality China Limited (Provision of hospitality related services)

Incorporated

China

400,000

43

50

S-R Burlington Partners, LLC (Provision of hospitality related services)

Incorporated

2,970,281

27

32

Name of associate/ principal activities

United States of America

City e-Solutions Limited Annual Report 2015

75

Notes to the Financial Statements 31 December 2015

17. INTEREST IN ASSOCIATES (cont’d)

All of the above associates are accounted for using the equity method in the consolidated financial statements. None of the associates are individually material to the Group. Aggregate information of the associates that are not individually material as follows: 2015 HK$’000

2014 HK$’000

8,322

8,880

Aggregate amounts of the Group’s share of those associates: Profit from continuing operations Other comprehensive income

202 –

884 –

Total comprehensive income

202

884

Aggregate carrying amount of individually immaterial associates in the consolidated financial statements

18. DEFERRED TAX ASSETS (a) Deferred tax assets recognised

The components of deferred tax assets recognised in the consolidated statement of financial position and the movements during the year are as follows:

Tax losses HK$’000

Deductible temporary differences HK$’000

Total HK$’000

At 1 January 2014 Charged to profit or loss Exchange adjustments

16,300 3,072 9

4,504 744 3

20,804 3,816 12

At 31 December 2014

19,381

5,251

24,632

At 1 January 2015 Charged to profit or loss Exchange adjustments

19,381 (12,135) (15)

5,251 (2,294) (5)

24,632 (14,429) (20)

7,231

2,952

10,183

2015 HK$’000

2014 HK$’000

55,559

4,166

Deferred tax arising from:

At 31 December 2015 (b) Deferred tax assets not recognised The following temporary differences have not been recognised:

Tax losses

City e-Solutions Limited Annual Report 2015

76

Notes to the Financial Statements 31 December 2015

18. DEFERRED TAX ASSETS (cont’d) (b) Deferred tax assets not recognised (cont’d)

Deferred tax assets have not been recognised in respect of the unutilised tax losses because it is not probable that future taxable profits will be available against which the Group can utilise the benefits. The tax losses do not expire under the respective countries’ tax legislations.

19. TRADING SECURITIES

Equity securities (at market value) - Listed outside Hong Kong - fellow subsidiaries - non-related company - Unlisted



2015 HK$’000

2014 HK$’000

61,894 10,053 15,551

82,263 7,685 21,249

87,498

111,197

Included in trading securities is an amount of HK$1,619,000 (2014: HK$1,683,000) relating to investment securities held in respect of the Group’s defined contribution plan (Note 25).

20. TRADE AND OTHER RECEIVABLES 2015 HK$’000

2014 HK$’000

Other receivables and deposits Amounts owing by affiliated companies, trade Loans and receivables Prepayments

17,736 (147) 17,589 3,648 4,714 25,951 6,556

15,922 (527) 15,395 7,190 1,094 23,679 6,595

Trade and other receivables

32,507

30,274

Third-party trade receivables Less: Allowance for doubtful debts (Note 20(b))



The amounts owing by affiliated companies are unsecured and interest-free, and are repayable on demand. There is no allowance for impairment loss arising from these balances. Affiliated companies comprise subsidiaries of the holding company.

City e-Solutions Limited Annual Report 2015

77

Notes to the Financial Statements 31 December 2015

20. TRADE AND OTHER RECEIVABLES (cont’d) (a) Ageing analysis

The ageing analysis of third-party trade receivables (net of allowance for doubtful debts) and trade amounts owing by affiliated companies based on invoice date is as follows:

Less than 1 month 1 to 3 months 3 to 12 months

2015 HK$’000

2014 HK$’000

10,675 8,816 2,812

10,587 4,173 1,729

22,303

16,489

The Group’s credit policy is set out in note 30. Trade receivables are due within 1 month from the date of billing. (b) Impairment of trade receivables

Impairment losses in respect of trade receivables are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade receivables directly. The movements in the allowance for doubtful debts during the year are as follows: 2015 HK$’000

2014 HK$’000

At 1 January (Reversal)/Recognition of impairment loss

527 (380)

– 527

At 31 December

147

527

(c) Trade receivables that are not impaired



The ageing analysis of third-party trade receivables and trade amounts owing by affiliated companies that are neither individually nor collectively considered to be impaired is as follows: 2015 HK$’000

2014 HK$’000

Neither past due nor impaired

12,481

10,494

1 to 3 months overdue 3 to 12 months overdue

7,300 487 7,787 20,268

2,559 520 3,079 13,573

Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default.

City e-Solutions Limited Annual Report 2015

78

Notes to the Financial Statements 31 December 2015

20. TRADE AND OTHER RECEIVABLES (cont’d) (c) Trade receivables that are not impaired (cont’d)

Receivables that were past due but not impaired relate to customers having a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral over these balances.

21. CASH AND CASH EQUIVALENTS



2015 HK$’000

2014 HK$’000

Deposits with banks and other financial institutions Cash at bank and on hand Cash and cash equivalents in the consolidated statement of financial position Less: Cash pledged for interest-bearing borrowings (Note 23)

313,030 52,451

272,917 99,907

365,481 (1,224)

372,824 (1,954)

Cash and cash equivalents in the consolidated statement of cash flows

364,257

370,870

The weighted average effective interest rates per annum relating to cash and cash equivalents at the end of the reporting period for the Group is 1.394% (2014: 1.875%). Interest rates re-priced within twelve months.

22. TRADE AND OTHER PAYABLES

Trade payables Other payables and accrued charges Deferred income

2015 HK$’000

2014 HK$’000

7,516 16,645 24,161 5,300

512 21,067 21,579 8,345

29,461

29,924

All of the trade and other payables are expected to be settled within one year. Deferred income relates to amounts billed in advance. Trade and other payables, excluding deferred income, have the following ageing analysis based on due date:

Due within 1 month or on demand Due 1 to 3 months Due 3 to 12 months

2015 HK$’000

2014 HK$’000

18,358 2,054 3,749

11,596 1,303 8,680

24,161

21,579

City e-Solutions Limited Annual Report 2015

79

Notes to the Financial Statements 31 December 2015

23. INTEREST-BEARING BORROWINGS

Bank loans - secured Finance lease liabilities

Repayable: - Within 1 year - After 1 year but within 2 years - After 2 years but within 5 years - After 5 years

2015 HK$’000

2014 HK$’000

30,428 62

31,130 233

30,490

31,363

899

969

873 2,846 25,872 29,591

907 2,745 26,742 30,394

30,490

31,363

Security The Group’s term loan is secured by: •

a first priority mortgage of Sheraton Chapel Hill Hotel, its improvements, equipment and fixtures with a carrying amount of HK$37.8 million (2014: HK$38.3 million) as at 31 December 2015 (Note 12);

•

assignments of all rights and benefits to sale, lease, agreements, trademarks and insurance proceeds in respect of Sheraton Chapel Hill Hotel;

•

pledge of monies held in specific bank accounts of HK$1.2 million (2014: HK$2.0 million) as at 31 December 2015 (Note 21); and

•

guarantee by Richfield Hospitality, Inc (“RHI”), an indirect subsidiary of the Group.

Covenant

The Group’s banking facilities are subject to the fulfillment of covenants relating to certain Group’s financial ratios, as are commonly found in lending arrangements with financial institutions. If the Group were to breach the covenants, the drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. Further details of the Group’s management of liquidity risk are set out in note 30(c). As at 31 December 2015, none of the covenants relating to drawn down facilities had been breached.

City e-Solutions Limited Annual Report 2015

80

Notes to the Financial Statements 31 December 2015

23. INTEREST-BEARING BORROWINGS (cont’d) Non-recourse Carveout Guarantees

As of 31 December 2015, RHI and SWAN USA, Inc (the “Guarantors”), both being indirect subsidiaries of the Group, are guarantors for certain indebtedness relating to the Group’s joint operation, joint venture and associate, as below: (a) RHI is a guarantor of indebtedness of the term loan entered into by Swan Carolina Investor, LLC and SFI Carolina TIC SPE, LLC for Sheraton Chapel Hill Hotel. The term guarantee expires on 6 May 2023. (b) RHI and SWAN USA, Inc are guarantors of indebtedness of the term loan entered into by the Group’s joint venture, Richfield Syracuse Hotel Partners, LLC. The term guarantee which was originally due to expire on 1 February 2016, has been extended to 1 March 2016. (c) RHI and Swan USA, Inc are guarantors of indebtedness of the term loans entered into by RBH Mezz, LLC and Rich Burlington Hotel, LLC, which are underlying investments of S-R Burlington Partners, LLC. The term guarantees expire on 11 November 2017.



The above indebtedness are non-recourse in nature and the Group’s liabilities are limited to the collaterals on which the individual loans are secured. The guarantees entered by the Guarantors provide the lender with recourse for any losses and expenses arising from specific acts such as fraud, misappropriation of rents and intentional damages. The obligations of the Guarantors are to the extent which the collaterals are insufficient to meet the lender’s losses and expenses. These guarantees do not impose liability on the Guarantors for any other event such as the non-payment of loan by the borrower. The maximum potential liability of the Group under the guarantees as at 31 December 2015 is HK$290.8 million (2014: HK$296.6 million). 



The management is of the view that the possibility of violating the above covenants and triggering any cash outflow within the scope of the above guarantees is remote. In addition, the above indebtedness are non-recourse in nature and the carrying amount of the individual collateral is in excess of its respective outstanding loan amount.

24. DIVIDENDS RECEIVED IN EXCESS OF EARNINGS FROM EQUITY-METHOD ACCOUNTED JOINT VENTURE

Dividends in excess of earnings

2015 HK$’000

2014 HK$’000

19,487

17,256

Details of the Group’s net interest in the joint venture, which is accounted for using the equity method in the consolidated financial statements, are as follows: Proportion of ownership interest Name of joint venture/ Principal activities

RSF Syracuse Partners, LLC (Provision of hospitality related services)

Form of business structure

Place of incorporation and operation

Issued and paid up capital US$

Group’s effective interest %

Held by subsidiary %

Incorporated

United States of America

6,911,000

43

50

City e-Solutions Limited Annual Report 2015

81

Notes to the Financial Statements 31 December 2015

24. DIVIDENDS RECEIVED IN EXCESS OF EARNINGS FROM EQUITY-METHOD ACCOUNTED JOINT VENTURE (cont’d)

Summarised financial information of RSF Syracuse Partners, LLC and reconciliation to the carrying amount in the consolidated financial statements, are disclosed below: 2015 HK$’000

2014 HK$’000

13,846 74,589 (127,410) –

11,658 82,097 (5,954) (122,313)

(38,975)

(34,512)

8,143

7,317

(119,788)

–

–

(122,313)

Revenue Profit for the year Dividend received from RSF Syracuse Partners, LLC

76,150 2,008 3,255

79,478 2,979 28,090

Included in the above profit: Depreciation and amortisation Interest expense

(8,619) (3,479)

(9,081) (4,049)

38,975 50%

34,512 50%

19,487

17,256

Gross amounts of RSF Syracuse Partners, LLC’s Current assets Non-current assets Current liabilities Non-current liabilities Equity Included in the above assets and liabilities: Cash and cash equivalents Current financial liabilities (excluding trade and other payables and provisions) Non-current financial liabilities (excluding trade and other payables and provisions)

Reconciled to the Group’s interest in RSF Syracuse Partners, LLC Gross amounts of net liabilities Group’s interest Group’s share of net liabilities, representing the carrying amount in the consolidated financial statements 25. EMPLOYEE RETIREMENT BENEFITS

The Group operated a defined contribution plan (the “Plan”) in the United States. Under the Plan, employees might elect to contribute a percentage of their regular compensation to the Plan and to direct the distribution of these amounts among the Plan’s investment options. The Group would match 50% of each employee’s contributions up to a maximum of 3% of the employee’s annual base compensation.



At the end of the reporting period, the contributions by the Group and its employees amounting to HK$1,619,000 (2014: HK$1,683,000) have been invested in securities and included within trading securities on the consolidated statement of financial position (Note 19).

City e-Solutions Limited Annual Report 2015

82

Notes to the Financial Statements 31 December 2015

25. EMPLOYEE RETIREMENT BENEFITS (cont’d)

On 1 January 2015, in compliance with the new Affordable Care Act regulations that were issued, the Group terminated the Plan. Arrangements were made in January 2016 to dispose all trading securities under the Plan so as to refund the affected employees.

26. CAPITAL AND RESERVES (a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Group’s consolidated equity is set out in the consolidated statement of changes in equity. Details of the changes in the Company’s individual components of equity between the beginning and the end of the year are set out below:

Share capital HK$’000

Capital redemption reserve HK$’000

Revenue reserve HK$’000

Total HK$’000

382,450

676

190,797

573,923

–

–

6,233

6,233

Balance at 31 December 2014

382,450

676

197,030

580,156

Balance at 1 January 2015

382,450

676

197,030

580,156

The Company Balance at 1 January 2014 Changes in equity for 2014: Total comprehensive income for the year

Changes in equity for 2015: Total comprehensive income for the year Balance at 31 December 2015

–

–

(34,118)

(34,118)

382,450

676

162,912

546,038

City e-Solutions Limited Annual Report 2015

83

Notes to the Financial Statements 31 December 2015

26. CAPITAL AND RESERVES (cont’d) (b) Share capital (i)

Authorised and issued share capital The Company 2015 No. of shares (’000)

2014 HK$’000

No. of shares (’000)

HK$’000

2,720,615

2,720,615

2,720,615

2,720,615

382,450

382,450

382,450

382,450

Authorised: Ordinary shares of HK$1 each Ordinary shares, issued and fully paid: At 1 January and 31 December

The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.

(ii)

Purchase of own shares



Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year ended 31 December 2015.

City e-Solutions Limited Annual Report 2015

84

Notes to the Financial Statements 31 December 2015

26. CAPITAL AND RESERVES (cont’d) (b) Share capital (cont’d) (iii)

Share option scheme



The Share Option Scheme (the “2005 Scheme”) for eligible persons, including employees (including the Executive Directors) and non-executive Directors of the Company and its associates, was adopted by the Company on 27 April 2005 (the “Adoption Date”). The purpose of the scheme is to provide an opportunity for employees of the Group to acquire an equity participation in the Company and to encourage them to work towards enhancing the value of the Company and its shares for the benefit of the Company and its shareholders as a whole. Under the 2005 Scheme, the maximum number of shares that may be granted by the Directors shall not exceed 10% of the share capital of the Company in issue at the Adoption Date unless the Company obtains a fresh approval from its shareholders. The maximum number of shares which may be issued upon exercise of all outstanding options and yet to be exercised under the 2005 Scheme and any other option scheme(s) of the Company shall not in aggregate exceed 30% of the shares in issue from time to time. The subscription price of shares under the 2005 Scheme shall not be less than the highest of: (i) the official closing price of the shares as stated in daily quotations sheet of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on the Offer Date; (ii) the average of the official closing price of the shares as stated in daily quotations sheets of the Stock Exchange for the 5 business days immediately preceding the Offer Date; and (iii) the nominal value of a share. The Executive Share Option Scheme (the “1997 Scheme”) adopted by the Company on 11 June 1997 was terminated upon the 2005 Scheme becoming effective. The 2005 Scheme was valid and effective for a period of ten years ended on 26 April 2015, after which no further options would be granted.



Throughout the financial year, no share option was granted and outstanding.



During the financial year, the 2005 Scheme has lapsed. There were no options to take up unissued shares of the Company and no unissued shares of the Company under option.

(c) Nature and purpose of reserves (i)

Capital redemption reserve



Capital redemption reserve represents the nominal value of the shares repurchased which has been paid out of the distributable reserves of the Company.

(ii)

Exchange reserve



The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations and exchange differences on monetary items which form part of the Group’s net investment in foreign operations, provided certain conditions are met. The reserve is dealt with in accordance with the accounting policy set out in note 1(u).

City e-Solutions Limited Annual Report 2015

85

Notes to the Financial Statements 31 December 2015

26. CAPITAL AND RESERVES (cont’d) (d) Distributability of reserves

At 31 December 2015, the aggregate amount of reserves available for distribution to equity shareholders of the Company was HK$162,912,000 (2014: HK$197,030,000).

(e) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.



The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.



The Group monitors its capital structure on the basis of net debt-to-adjusted capital ratio. It is the Group’s strategy to keep the net debt-to-adjusted capital ratio as low as feasible. In order to maintain or adjust the ratio, the Group may adjust the amount of dividends paid to shareholders, issue new shares, return capital to shareholders, raise new debt financing or sell assets to reduce debt. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements.

City e-Solutions Limited Annual Report 2015

86

Notes to the Financial Statements 31 December 2015

27. NON-CONTROLLING INTERESTS

The following table lists out the information relating to the consolidated results and financial position of SWAN Holdings Limited, its subsidiaries, joint arrangements and associates (“Swan”). Swan is the only subsidiary of the Group which has material noncontrolling interests (“NCI”). The summarised financial information presented below represents the amounts before any intercompany elimination.

NCI percentage

2015 HK$’000

2014 HK$’000

15%

15%

Current assets Non-current assets Current liabilities Non-current liabilities Net assets NCI of Swan’s subsidiaries

198,035 82,733 (24,720) (49,078) 206,970 (8,554)

202,445 105,011 (21,832) (47,650) 237,974 (11,269)

Net assets attributable to equity shareholders of Swan

198,416

226,705

Carrying amount of NCI of Swan Add: NCI of Swan’s subsidiaries (as above)

29,763 8,554

34,007 11,269

Total carrying amount of NCI

38,317

45,276

Revenue

87,034

94,671

Loss for the year Loss/(Profit) attributable to NCI of Swan’s subsidiaries

(30,714) 2,705

(4,537) (1,342)

Loss for the year attributable to equity shareholders of Swan

(28,009)

(5,879)

Loss allocated to NCI of Swan

(4,202)

(878)

Cash flows (used in)/generated from operating activities Cash flows generated from investing activities Cash flows used in financing activities

(6,944) 16,562 (2,317)

3,426 38,844 (903)

City e-Solutions Limited Annual Report 2015

87

Notes to the Financial Statements 31 December 2015

28. PRINCIPAL SUBSIDIARIES

The following list contains only the particulars of subsidiaries which principally affected the results, assets or liabilities of the Group. The class of shares held is ordinary unless otherwise stated. Proportion of ownership interest Place of incorporation and operation

Particulars of issued and paid up capital

British Virgin Islands

Group’s effective interest %

Held by Company %

Held by Subsidiary %

1 share of US$1 each

100

100

–

Bermuda

33,345,333 shares of US$1 each

85

85

–

SWAN USA, Inc. (Holding company)

United States of America

100 common stocks of US$0.01 each

85

–

100

Richfield Hospitality Inc. (Investment holding and provision of hospitality related services)

United States of America

100 common stocks of US$1,000.01 each

85

–

100

Sceptre Hospitality Resources, LLC. (Provision of reservation system services)

United States of America

100 common stocks of US$0.01 each

43

–

51

Company name/ Principal activities Principal direct and indirect subsidiaries CES Capital Limited (Investment holding) SWAN Holdings Limited (Investment holding)

City e-Solutions Limited Annual Report 2015

88

Notes to the Financial Statements 31 December 2015

29. FINANCIAL INSTRUMENTS BY CATEGORY An analysis of the Group’s financial instruments is set out below:

Loans and receivables HK$’000

Financial assets at fair value through profit or loss HK$’000

15 19

– –

– 87,498

32,985 –

– –

20

25,951 9,771 365,481

– – –

– – –

– – –

401,203

87,498

32,985

–

– –

– –

– –

24,161 30,490

–

–

–

54,651

15 19

– –

– 111,197

33,016 –

– –

20

23,679 26,881 372,824

– – –

– – –

– – –

423,384

111,197

33,016

–

– –

– –

– –

21,579 31,363

–

–

–

52,942

Note

Available-forsale financial Liabilities at assets amortised cost HK$’000 HK$’000

2015 Assets Available-for-sale financial assets Trading securities Trade and other receivables, excluding prepayments Bank deposits Cash and cash equivalents

Liabilities Trade and other payables, excluding deferred income Interest-bearing borrowings

21

22 23

2014 Assets Available-for-sale financial assets Trading securities Trade and other receivables, excluding prepayments Bank deposits Cash and cash equivalents

Liabilities Trade and other payables, excluding deferred income Interest-bearing borrowings

21

22 23

City e-Solutions Limited Annual Report 2015

89

Notes to the Financial Statements 31 December 2015

30. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. The Group is also exposed to equity price risk arising from its equity investments in other entities and movements in its own equity share price.



The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below. (a) Credit risk

The Group’s credit risk is primarily attributable to trade and other receivables. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.



In respect of trade and other receivables, individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are due within 1 month from the date of billing. Debtors with balances that are more than 3 months past due are requested to settle all outstanding balances before any further credit is granted. Normally, the Group does not obtain collateral from customers.



Investments are normally only in liquid securities and with counterparties that have a credit rating equal to or better than the Group. Given their high credit ratings, management does not expect any investment counterparty to fail to meet its obligations.



Bank deposits placed with a financial institution have maturity dates ranging from four to sixteen (2014: two to twenty-eight) months from the end of the reporting period. Given its high credit rating, management does not expect the financial institution to fail to meet its obligations.



The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The default risk of the industry and country in which customers operate also has an influence on credit risk but to a lesser extent. At the end of the reporting period, 21% (2014: 5%) and 58% (2014: 58%) of the total trade receivables was due from the Group’s largest customer and the five largest customers respectively within the hospitality business segment.



The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position after deducting any impairment allowance.



Further quantitative disclosure in respect of the Group’s exposure to credit risk arising from trade receivables are set out in note 20.

City e-Solutions Limited Annual Report 2015

90

Notes to the Financial Statements 31 December 2015

30. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (b) Equity price risk

The Group is exposed to equity price changes arising from equity investments classified as trading securities (Note 19).



The Group’s listed equity investments are listed on the London Stock Exchange, NASDAQ Stock Market and The Philippines Stock Exchange, Inc. Decisions to buy or sell trading securities are based on daily monitoring of the performance of individual securities compared to other industry indicators, as well as the Group’s liquidity needs.



At 31 December 2015, a 3% (2014: 3%) increase in the underlying equity prices of the equity investments listed on the London Stock Exchange at the end of the reporting period would increase the Group’s profit after tax and increase the Group’s revenue reserve by approximately HK$2,121,000 (2014: HK$2,442,000). There is no impact on the other components of consolidated equity for both years. The analysis assumes that all other variables remain constant.



A 3% (2014: 3%) decrease in the underlying equity prices of the equity investments listed on the London Stock Exchange at the end of the reporting period, with all other variables held constant, would have an equal but opposite effect on the Group’s profit after tax and revenue reserve.



At 31 December 2015, a 3% (2014: 3%) increase in the underlying equity prices of the equity investments listed on the NASDAQ Stock Market at the end of the reporting period would increase the Group’s profit after tax and increase the Group’s revenue reserve by approximately HK$374,000 (2014: HK$231,000).



A 3% (2014: 3%) decrease in the underlying equity prices of the equity investments listed on the NASDAQ Stock Market at the end of the reporting period, with all other variables held constant, would have an equal but opposite effect on the Group’s profit after tax and revenue reserve.



In respect of the Group’s equity investment listed on The Philippines Stock Exchange, Inc., based on the historical trend analysis, management does not expect significant equity price movements on this investment and hence, any significant impact on the Group’s profit after tax, revenue reserve and other components of consolidated equity, assuming that all other variables remain constant.



The Group also holds investments in unlisted marketable equity mutual funds. Included in such investments is an amount of HK$1,619,000 (2014: HK$1,683,000) relating to investments held in respect of the Group’s defined contribution plan (Note 25). Any movement in the equity price would not have any impact on the Group’s profit after tax as there would be an equal and opposite change in the staff costs (Note 4) in response to the changes in the equity price.



At 31 December 2015, a 3% (2014: 3%) increase in the net asset value of the remaining balance of the investments in unlisted marketable equity mutual funds at the end of the reporting period would increase the Group’s profit after tax and increase the Group’s revenue reserve by approximately nil (2014: HK$587,000). There is no impact on the other components of consolidated equity for both years. The analysis assumes that all other variables remain constant.

City e-Solutions Limited Annual Report 2015

91

Notes to the Financial Statements 31 December 2015

30. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (cont’d) (b) Equity price risk (cont’d)

A 3% (2014: 3%) decrease in the net asset value of the remaining balance in unlisted marketable equity mutual funds at the end of the reporting period, with all other variables held constant, would have had the equal but opposite effect on the Group’s profit after tax and revenue reserve.



The sensitivity analysis has been determined assuming that the reasonably possible changes in stock prices, net asset values or other risk variables had occurred at the end of the reporting period and had been applied to the exposure to equity price risk in existence at that date. The stated changes represent management’s assessment of reasonably possible changes in the relevant stock price, net asset value or the relevant risk variables over the period until the next annual end of the reporting period. The analysis is performed on the same basis for 2014.

(c) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the short term investment of cash surpluses. The Group’s policy is to regularly monitor its liquidity requirements, to ensure that it maintains sufficient reserves of cash and readily realisable marketable securities to meet its liquidity requirements in the short and longer term.



Except for the interest-bearing borrowings, the total contractual undiscounted cash flows of the Group’s non-derivative financial liabilities are the same as their carrying amounts as their remaining contractual maturities are within one year.



The following table shows the remaining contractual maturities at the end of the reporting period of the Group’s long-term non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group can be required to pay: Contractual undiscounted cash outflow Within More than 1 year 1 year but or on less than After demand 5 years 5 years Total HK$’000 HK$’000 HK$’000 HK$’000

Carrying amount HK$’000

Non-derivative contractual liabilities 2015 Interest-bearing borrowings

(2,219)

(8,628)

(29,396)

(40,243)

(30,490)

2014 Interest-bearing borrowings

(2,383)

(8,721)

(31,583)

(42,687)

(31,363)

City e-Solutions Limited Annual Report 2015

92

Notes to the Financial Statements 31 December 2015

30. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (cont’d) (d) Interest rate risk

The Group’s interest rate risk arises primarily from its bank deposits and interest-bearing borrowings. Bank deposits and borrowings issued at fixed rates expose the Group to fair value interest rate risk.



The effective interest rates per annum relating to the bank deposits at the end of reporting period are within 0.45% to 1.10% (2014: 0.20% to 1.10%). The weighted average effective interest rates per annum relating to cash and cash equivalents at the end of the reporting period is set out in note 21.



The weighted average effective interest rates per annum relating to the borrowings at the end of the reporting period is 4.21% (2014: 4.21%).

(e) Currency risk

The Group is exposed to foreign currency risk through deposits and withdrawals of fixed deposits, sales and purchases of the trading securities that are denominated in a currency other than the functional currency of the operations to which they relate. The currencies giving rise to these risks are mainly the Sterling Pound, Singapore Dollar, Philippine Peso, Renminbi and US Dollar.



When necessary, the Group uses forward exchange contracts to hedge its specific currency risks. However, forward exchange contracts that do not qualify for hedge accounting are accounted for as trading instruments. As at the reporting date, the Group had no outstanding forward exchange contracts. (i)

Recognised assets and liabilities



In respect of trade receivables and payables held in currencies other than the functional currency of the operations to which they relate, the Group ensures that the net exposure is kept to an acceptable level.

(ii)

Exposure to foreign currency risk



The following table details the Group’s exposure at the end of the reporting period to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate to. For presentation purposes, the amounts of the exposure are shown in Hong Kong dollars, translated using the exchange rate ruling at the end of the reporting period.

City e-Solutions Limited Annual Report 2015

93

Notes to the Financial Statements 31 December 2015

30. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (cont’d) (e) Currency risk (cont’d) (ii)

Exposure to foreign currency risk (cont’d)

2015 Trading securities Trade and other receivables Cash and cash equivalents Trade and other payables Overall exposure arising from recognised assets and liabilities 2014 Trading securities Trade and other receivables Cash and cash equivalents Trade and other payables Overall exposure arising from recognised assets and liabilities

Sterling Pound HK$’000

Singapore Dollar HK$’000

Philippine Peso HK$’000

Renminbi HK$’000

US Dollar HK$’000

61,314 – 369 –

– – 5,200 (862)

582 – – –

– 57 66,438 –

10,049 7 132,150 (271)

61,683

4,338

582

66,495

141,935

81,399 48 66,181 –

– – 15,416 (5,134)

861 – – –

– 213 98,150 –

7,685 – 38,871 (271)

147,628

10,282

861

98,363

46,285

(iii)

Sensitivity analysis



The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the end of the reporting period and had been applied to the Group’s exposure to currency risk for financial instruments in existence at that date.



A 10% (2014: 10%) strengthening of the following foreign currencies against the functional currency of each of the Group’s entities at the end of the reporting period would impact the Group’s profit after tax and revenue reserve by the amounts shown below. There is no impact on the other components of consolidated equity. The analysis assumes that all other variables, in particular, interest rates, remain constant.

City e-Solutions Limited Annual Report 2015

94

Notes to the Financial Statements 31 December 2015

30. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (cont’d) (e) Currency risk (cont’d) (iii)

Sensitivity analysis (cont’d)

Sterling Pound Singapore Dollar Philippine Peso Renminbi US Dollar

Increase in profit after tax and increase in revenue reserve 2015 HK$’000

Increase in profit after tax and increase in revenue reserve 2014 HK$’000

6,168 434 58 6,650 14,194

14,763 1,028 86 9,836 4,629



A 10% (2014: 10%) weakening of the above currencies against the functional currency of each of the Group’s entities at the end of the reporting period would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables, in particular, interest rates, remain constant.



The stated changes represent management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual end of the reporting period. In this respect, it is assumed that the pegged rate between the Hong Kong dollar and the United States dollar would be materially unaffected by any changes in movement in value of the United States dollar against other currencies. Results of the analysis as presented in the above table represent the effect of the Group’s profit after tax and revenue reserve measured in the respective foreign currencies, translated into Hong Kong dollar at the exchange rate ruling at the end of the reporting period for presentation purposes. The analysis is performed on the same basis for 2014.

City e-Solutions Limited Annual Report 2015

95

Notes to the Financial Statements 31 December 2015

30. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (cont’d) (f)

Fair value measurement (i)

Financial instruments measured at fair value



The following table presents the carrying value of financial instruments measured at fair value at the end of the reporting period across the three levels of the fair value hierarchy defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of inputs used in the valuation techniques as follows: •

Level 1 valuations: fair values measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

•

Level 2 valuations: fair values measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available.

•

Level 3 valuations: fair value measured using significant unobservable inputs. Fair value measurements as at 31 December 2015 categorised into Fair value at 31 December 2015 HK$’000

Level 1 HK$’000

Level 2 HK$’000

Level 3 HK$’000

Fair value measurements as at 31 December 2014 categorised into Fair value at 31 December 2014 Level 1 HK$’000 HK$’000

Level 2 Level 3 HK$’000 HK$’000

Recurring fair value measurements Asset: Equity securities held for trading: - Listed - Unlisted



71,947 15,551

71,947* 1,619**

– –

– 13,932***

87,498

73,566

–

13,932

89,948 21,249 111,197

89,948* 1,683**

– –

– 19,566***

91,631

–

19,566

City e-Solutions Limited Annual Report 2015

96

Notes to the Financial Statements 31 December 2015

30. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (cont’d) (f)

Fair value measurement (cont’d) (i)

Financial instruments measured at fair value (cont’d) *

Fair value of listed equity securities is based on quoted market prices of the listed equity securities at the end of the reporting period without any deduction for transactions costs.

**

This unlisted equity securities relate to the Group’s defined contribution plan. The plan invests in listed securities and hence the fair value of the plan follows the fair value of the underlying securities which can be measured using quoted price (unadjusted) in active markets.

***

The fair value of this unlisted held-for-trading equity securities is determined based on the net asset value of the fund, which had underlying unlisted investments categorised as Level 3 in the fair value hierarchy. The fair value of such underlying investments is determined based on inputs such as contractual agreements, current and projected operating performance, rounds of financing and third-party transactions, discounted cash flow analysis and market-based information, including comparable company transactions, trading multiples and changes in market outlook, among other factors.

During the years ended 31 December 2015 and 31 December 2014, there were no transfers between levels. The movements in the Level 3 financial instruments measured at fair value are as follows: Financial assets at fair value through profit or loss 2015 HK$’000

2014 HK$’000

At 1 January Net unrealised (loss)/gain recognised in profit or loss

19,566 (5,634)

12,528 7,038

At 31 December

13,932

19,566



The (loss)/gain for the period recognised in profit or loss of the unlisted equity securities is presented in “other net losses” in the consolidated statement of profit or loss.



Although the Group believes that its estimates of fair values are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair values. For fair value measurement in Level 3, changing one or more of the assumptions used to reasonably possible alternative assumptions would have the following effects:

City e-Solutions Limited Annual Report 2015

97

Notes to the Financial Statements 31 December 2015

30. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (cont’d) (f)

Fair value measurement (cont’d) (i)

Financial instruments measured at fair value (cont’d)

Fair value HK$’000

Effect on fair value Favourable Unfavourable changes changes HK$’000 HK$’000

Financial assets at fair value through profit or loss 2015 Equity securities

13,932

139

(139)

2014 Equity securities

19,566

16

(16)



The favourable and unfavourable effects have been calculated based on a percentage change in the net asset value of the fund.

(ii)

Financial instruments not measured at fair value but for which the fair value is disclosed



The carrying amounts of the Group’s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 December 2015 and 31 December 2014 except for available-for-sale equity securities and fixed rate borrowings. •

Fair value information has not been disclosed for the Group’s available-for-sale equity securities that are carried at cost of HK$33.0 million (2014: HK$33.0 million) because fair value cannot be measured reliably. These equity securities represent the capital contribution in a fund that is not quoted on any market. The Group does not intend to dispose this investment in the foreseeable future.

•

The carrying amounts, fair values and the level of fair value hierarchy of the fixed rate borrowings are as follows: Fair value measurements categorised into



Carrying amounts HK$’000

Fair value HK$’000

Level 1 HK$’000

Level 2 HK$’000

Level 3 HK$’000

2015

(30,490)

(30,955)

–

(30,955)

–

2014

(31,363)

(31,669)

–

(31,669)

–

The fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments. The interest rate used is as follows:

Fixed rate borrowings

2015

2014

4.17%

4.24%

City e-Solutions Limited Annual Report 2015

98

Notes to the Financial Statements 31 December 2015

31. MATERIAL RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere, there were the following material related party transactions entered into in terms agreed between the parties during the year:

Dividend income received from affiliated companies Income received from provision of hospitality and other related services to affiliated companies Income received from provision of hospitality and other related services to a joint operation Income received from provision of hospitality and other related services to a joint venture Tax service fee paid to an affiliated company Secretarial service fee paid to an affiliated company Consultation fee paid to an affiliated company Accounting fee paid to an affiliated company

2015 HK$’000

2014 HK$’000

1,860

3,379

8,884

7,118

859

857

5,021 (407) (449) – (339)

4,399 (509) (1,392) (611) (367)

Key management personnel remuneration

Remuneration for key management personnel of the Group, including amounts paid to the Company’s directors as disclosed in note 6 and certain of the highest paid employees as disclosed in note 7, is as follows:

Short-term employee benefits

2015 HK$’000

2014 HK$’000

7,096

6,424

Total remuneration is included in the administrative expenses. 32. COMMITMENTS

At 31 December 2015 and 31 December 2014, the total future minimum lease payments under non-cancellable operating leases payable are as follows:

Within 1 year After 1 year but within 5 years After 5 years



2015 HK$’000

2014 HK$’000

2,774 6,749 7,121

1,494 1,191 –

16,644

2,685

The above leases run for an initial period of between one to ten (2014: one to three) years. One of the leases includes an option to renew the lease on expiry. The leases do not include any contingent rental.

City e-Solutions Limited Annual Report 2015

99

Notes to the Financial Statements 31 December 2015

33. COMPANY-LEVEL STATEMENT OF FINANCIAL POSITION 2015 HK$’000

2014 HK$’000

Property, plant and equipment Other receivables Interests in subsidiaries

10 32,989 220,860

– 33,019 220,860

Total non-current assets

253,859

253,879

85,879 6,942 208,435

109,514 2,845 223,498

301,256

335,857

(9,077)

(9,580)

Note Non-current assets

Current assets Trading securities Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables

(9,077)

(9,580)

Net current assets Total assets less current liabilities

292,179 546,038

326,277 580,156

NET ASSETS

546,038

580,156

382,450 163,588 546,038

382,450 197,706 580,156

CAPITAL AND RESERVES Share capital Reserves TOTAL EQUITY

26

Approved and authorised for issue by the board of directors on 24 February 2016.

Kwek Leng Beng Chairman

Gan Khai Choon Director

City e-Solutions Limited Annual Report 2015

100

Notes to the Financial Statements 31 December 2015

34. IMMEDIATE AND ULTIMATE HOLDING COMPANIES

The immediate holding company is City Developments Limited. The Directors consider the ultimate holding company to be Hong Leong Investment Holdings Pte. Ltd.. Both companies are incorporated in the Republic of Singapore. The immediate holding company produces financial statements available for public use.

35. ACCOUNTING ESTIMATES AND JUDGEMENTS Note 14 contains information about the assumptions and the risk factors relating to impairment of goodwill. 36. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2015

Up to the date of issue of these financial statements, the HKICPA has issued a number of amendments and new standards which are not yet effective for the year ended 31 December 2015 and which have not been adopted in these financial statements. These include the following which may be relevant to the Group. Effective for accounting periods beginning on or after Amendments to HKAS 1, Disclosure initiative Amendments to HKAS 16 and HKAS 38, Clarification of acceptable methods of depreciation and amortisation Amendments to HKAS 27, Equity method in separate financial statements Amendments to HKFRS 10, Sale or contribution of assets between an investor and its associate or joint venture Amendments to HKFRS 11, Accounting for acquisitions of interests in joint operations Annual Improvements to HKFRSs 2012-2014 Cycle HKFRS 15, Revenue from contracts with customers HKFRS 9, Financial instruments



1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2018 1 January 2018

The Group is in the process of making an assessment of the expected impact of these amendments in the period of initial application.

Corporate Information

Executive Directors Kwek Leng Beng (Chairman and Managing Director) Gan Khai Choon Lawrence Yip Wai Lam

Nomination Committee Dr. Lo Ka Shui Teoh Teik Kee Lee Jackson @ Li Chik Sin Chan Bernard Charnwut Gan Khai Choon

Non-Executive Directors Chan Bernard Charnwut Ronald Nathaniel Issen (Deputy Chairman)

Chief Executive Officer Wong Hong Ren

Independent Non-Executive Directors Dr. Lo Ka Shui Lee Jackson @ Li Chik Sin Teoh Teik Kee Audit Committee Teoh Teik Kee Lee Jackson @ Li Chik Sin Chan Bernard Charnwut Remuneration Committee Teoh Teik Kee Lee Jackson @ Li Chik Sin Gan Khai Choon

Cover 2-3.indd 3

Company Secretary Leung Wing Han Sharon Auditors KPMG LLP Public Accountants and Chartered Accountants 16 Raffles Quay #22-00 Hong Leong Building Singapore 048581 Principal Bankers The Hongkong & Shanghai Banking Corporation Limited Mizuho Bank, Ltd.

Registrars Principal Registrar Computershare Hong Kong Investor Services Limited Branch Registrar Maples and Calder, Cayman Islands Principal Office Room 2803, 28th Floor Great Eagle Centre 23 Harbour Road, Wanchai Hong Kong Registered Office C/o Maples and Calder P.O. Box 309, Grand Cayman Cayman Islands British West Indies Legal Advisors Hong Kong Iu, Lai & Li Solicitors & Notaries Cayman Islands Maples and Calder, Attorneys-at-Law

16年3月10日 下午9:10